Business Opportunities

Opportunities for
Investment Activities

Japan Exchange Group (JPX) aims to continue to be one of the world’s pivotal markets while focusing on creating greater convenience for overseas investors.

Among its markets, Tokyo Stock Exchange (TSE) is one of the world’s leading exchanges by market capitalization of listed companies. TSE promotes initiatives that enhance the corporate values of listed companies.

Market capitalization 2,5002,0001,5001,0005000 TSENYSESSEHKExLSE (Trillion yen) 2,251 597 525 472 413 Market Capitalization of Major Exchanges * 1
2520151050 TSENYSELSE 5.9 5.1 23.1 16.3 4.9 1.4 (Trillion USD) 0.86 0.71 0.28 Liquidity Comparison of Major Exchanges (2019) * 2 Market capitalization [a] *The turnover rates [b/a] for each exchange are given in the blue boxes. Trading value [b]
Number of Listed Companies on Major Markets * 3 [Number of listed issues] 6,0005,0004,0003,0002,0001,0000 BSE (India)TSE (Japan)BME (Spain)TMX (Canada)NASDAQ (USA)NYSE (USA)ASX (Australia)KRX (South Korea)HKEX (China)SZSE (China)
Number of Listed Companies on Major Markets * 3 [Number of listed issues] 6,0005,0004,0003,0002,0001,0000 BSE (India)TSE (Japan)BME (Spain)TMX (Canada)NASDAQ (USA)NYSE (USA)ASX (Australia)KRX (South Korea)HKEX (China)SZSE (China)

Source:

  1. 1. The Organization of Global Financial City Tokyo (FinCity Tokyo) (Japanese Only)
  2. 2. Nomura Institute of Capital Markets Research. ≪Stock Market≫ Each Type of Market Shift, Winter 2019
  3. 3. World Federation of Exchanges. Market Statistics, March 2020.

In April 2022, TSE restructured its market segments from five to three. Over 90 percent of listed companies on the Prime Market are implementing disclosure in English. Higher levels of corporate governance code have also been applied. As a result, the values of listed companies are expected to further increase.

Old market segments

1st Section

Mothers

2nd
Section

JASDAQ Standard Growth

New market segments

  • Prime
    Market

    For companies that concentrate on constructive dialogue with global investors

  • Standard
    Market

    For companies that have sufficient liquidity and governance levels to be investment instruments

  • Growth
    Market

    For companies that have high growth potential

A total of 276 ETFs are listed (as of October 31, 2022), including Japanese thematic ETFs (including ESG-related issues) and foreign stock and bond ETFs. The Market Making Incentive Scheme was introduced in 2018, and liquidity has improved as the system continues to be revised. (The figure shows an example of improved liquidity for sector-specific ETFs.)

Example of improved liquidity:
“Change in ETFs’ order book situation by sector.”

The order book situations for industry-specific ETFs have clearly improved since the Market Making Incentive Scheme Ver. 2.0 designations.

  • Average spreads have narrowed (approx. from 30 bps to 16 bps)
  • The displayed quantities on the best bids and offers have doubled (from just under 10 million yen to over 20 million yen)

Shifts in the states of displayed quantities of sector-specific ETFs (average of 17 issues each)

3/1/20223/2/20223/3/20223/4/20223/5/20223/6/20223/7/20223/8/20223/9/20223/10/20223/11/20223/12/20223/13/20223/14/20223/15/20223/16/20223/17/20223/18/20223/19/20223/20/20223/21/20223/22/20223/23/20223/24/20223/25/20223/26/20223/27/20223/28/20223/29/20223/30/20223/31/20224/1/20224/2/20224/3/20224/4/20224/5/20224/6/20224/7/2022 2,5002,0001,5001,0005000 Executable quote amounton the best bid/offer (left axis) Trading value(left axis) Average spread(right axis) 35.0030.0025.0020.0015.0010.005.000.00 Ver. 2.0 designation
3/1/20223/2/20223/3/20223/4/20223/5/20223/6/20223/7/20223/8/20223/9/20223/10/20223/11/20223/12/20223/13/20223/14/20223/15/20223/16/20223/17/20223/18/20223/19/20223/20/20223/21/20223/22/20223/23/20223/24/20223/25/20223/26/20223/27/20223/28/20223/29/20223/30/20223/31/20224/1/20224/2/20224/3/20224/4/20224/5/20224/6/20224/7/2022 2,5002,0001,5001,0005000 Executable quote amounton the best bid/offer (left axis) Trading value (left axis) Average spread (right axis) 35.0030.0025.0020.0015.0010.005.000.00 Ver. 2.0 designation

* “Best executable quote amount” refers to a time-weighted average of only the best prices among the quoted amounts. As such, if quotes besides the best are included, the actual executable amount becomes larger.

There are also abundant investment opportunities in private markets.

Private equity investments in Japan are increasing. While equity carve-outs and de-listings are gaining attention in large scale projects, business succession by owners and founders is doing the same in small and medium scale projects.

Figure 1: Monetary amounts and number of domestic investment deals involving PE funds (by sector)

Auto and industrial products Energy utilities and resources Retail and consumer products/services Technology, media and telecommunications Financial services and real estate Healthcare Number of deals Other 4.03.53.02.52.01.51.00.50.0 9080706050403020100 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (Trillion yen) (Number of deals)
Auto and industrial products Energy utilities and resources Retail and consumer products/services Technology, media and telecommunications Financial services and real estate Healthcare Number of deals Other 4.03.53.02.52.01.51.00.50.0 9080706050403020100 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (Trillion yen) (Number of deals)

Source: Trends in Japan’s private equity market and related considerations - 2022

Note: The amount of information disclosed in relation to investment amounts is limited. This figure does not include investments of an undisclosed amount.

Figure 2: Trends in dry powder of PE funds with an interest in Japan

7.06.05.04.03.02.01.00.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (Trillion yen) (Year) (As of end of June)
7.06.05.04.03.02.01.00.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (Trillion yen) (Year) (As of end of June)

Source: Trends in Japan’s private equity market and related considerations - 2022

Furthermore, investments in start-ups in Japan are rapidly increasing; the investments made by overseas corporations are particularly remarkable.

12,50010,0007,5005,0002,5000 (Trillion yen) 2021 11,560 3,899 1,924 2020 5,567 2,150 1,626 2019 6,139 1,578 2,404 2018 5,463 1,829 2,046 2017 4,342 1,398 1,665 2016 2,778 1,140 687 2015 2,417 792 810 2014 1,779 715 631 2013 1,209 532 396 2012 1,392 VC Business corporations Financial institutions Overseas corporations Individuals Others
12,50010,0007,5005,0002,5000 (Trillion yen) 2021 11,560 3,899 1,924 2020 5,567 2,150 1,626 2019 6,139 1,578 2,404 2018 5,463 1,829 2,046 2017 4,342 1,398 1,665 2016 2,778 1,140 687 2015 2,417 792 810 2014 1,779 715 631 2013 1,209 532 396 2012 1,392 VC Business corporations Financial institutions Overseas corporations Individuals Others

Note:

  1. 1. As of January 25, 2022. (The values given for each year are those observed up to the base date.)
  2. 2. Start-ups in Japan are unlisted companies (including companies started in Japan by non-Japanese people, and companies started overseas by Japanese people), as well as other companies defined as “start-ups in Japan” by Uzabase, Inc.
  3. 3. “Business corporations” does not include CVC. “Overseas corporations” includes overseas financial institutions as well as overseas business corporations. “Others” includes SPCs (Special-Purpose Company), crowdfunding, local governments, universities, foundations, and other funds and unspecified entities.
  4. 4. Investment amounts include conjecture by Uzabase, Inc.

Source: Uzabase, Inc., Japan Startup Finance 2021: Japan Startup Funding

Opportunities for Asset Raising
& Sales Activities

Japan on the whole has seen a significant increase in its assets under management. Japan also holds a wealth of individual financial assets, which are a great source of potential.

2,005 trillion yen 1,088 trillion yen Cash equivalent 1980 1985 1990 1995 2000 2005 2010 2015 2020 Shifts in Japan’s Household Financial Assets (as of end of March 2022)

Source: Created by FSA from data provided by the Bank of Japan

(Trillion yen) [FY] 100 200 300 400 500 600 222 2011 234 2012 241 2013 265 2014 296 2015 320 2016 357 2017 410 2018 448 2019 518 2020 0 Assets Under Management in Japan

Note: The figures include investments in trust (private/public) and discretionary accounts; they exclude price fluctuations.
Source: Bank of Japan & Japan Investment Advisers Association

The asset compositions of Japan’s institutional investors are changing. For example, the Government Pension Investment Fund (GPIF) has greatly expanded its investments in alternative assets.

10% 15% 20% 25% (Billion yen) [FY] 20% 25% 30% 35% 40% 2016 2017 2018 2019 2020 15% 5% [FY] Domestic bonds (RHS) Foreign equities Foreign bonds Domestic equities Alternativeinvestment Asset Allocation of Institutional Investors in Japan

Note: The figures include investments in infrastructure, private equity, and real estate.
Source: GPIF

(Billion yen) [FY] 200 400 600 800 1,000 0 2014 6 2015 83 2016 101 2017 213 2018 433 2019 944 billion yen 2020 ≈ 9 billion USD 0 GPIF’s Alternative Investment

Note: The figures include investments in infrastructure, private equity, and real estate.
Source: GPIF

Against this backdrop, overseas asset management firms have become able to enter the Japan market through registering in English.

Additionally, from July 2022 the requirements for an individual to become a professional investor have become more elastic, facilitating the solicitation of individual investors.