JAPAN: An Introduction to Capital Markets: Domestic
In 2025, Japan’s stock market is navigating a landscape of significant instability stemming from the global repercussions of Trump’s tariffs. These trade policies have triggered substantial volatility and downturns in stock markets worldwide, including Japan, despite the Nikkei’s strong performance in the preceding year.
Despite this global uncertainty, the Japanese IPO market has demonstrated resilience, maintaining a strong number of listings. The prevailing trend, however, continues to be towards smaller offerings. Notably, 2025 has seen sustained interest in listings from diverse sectors, particularly deep-tech and sustainability-focused businesses, mirroring the trends of the previous year.
Alternative pathways to public listing are increasingly common. Companies are leveraging the Tokyo Pro Market as a stepping stone to the Main Market, and “swing by IPOs”, facilitated by larger corporations, are becoming a more established route. This growing diversity in IPO approaches highlights a broader trend of companies adopting varied strategies to achieve public listings.
Furthermore, the unwinding of cross-shareholdings among listed companies has accelerated in 2025. This practice, driven by the pursuit of greater transparency in corporate governance and the maximisation of corporate value, is particularly evident among blue-chip companies and financial institutions.
Against the backdrop of a challenging global economic environment, Japanese listed companies facing business difficulties continue to utilise private investments in public equity (PIPEs) as a means of raising capital. This indicates an ongoing need for financial manoeuvring in response to prevailing economic headwinds. The contrast between the underlying strength in certain segments of the Japanese market, such as IPOs and corporate governance reforms, and the overarching instability caused by global factors like trade disputes has – so far – defined the economic narrative in Japan in 2025.
Capital Market Reform as a Growth Strategy for Japan
Currently, the supply of growth capital to unlisted companies in Japan is a challenge. In recent years, the market capitalisation of newly listed companies in this country has been stagnant. There are various opinions on the reasons for this, but some point to the insufficient supply of venture capital and the lack of attraction of foreign capital, which prevents companies from growing sufficiently at the unlisted stage.
In view of this situation, Japan has been advancing institutional reforms since 2020 to ensure the smooth supply of growth capital and revitalise the capital market.
Improving the environment for activating transactions of unlisted shares
The Japanese capital market has limited opportunities for private investors to invest in unlisted companies, and the base of investors other than venture capital firms is narrow. With a view to increasing the flow of funds to unlisted start-ups, changes have been made to legal restrictions to broaden the range of investors eligible to invest in unlisted companies by, for example, making the requirements for such investors more flexible. Also, the handling of sales of unlisted shares to such investors by securities firms is in principle prohibited, but the exceptions to this rule have been expanded. In addition, amendments have been made to relax the licensing requirements for operating secondary trading platforms for unlisted shares, and practical progress is anticipated.
Reviewing the regulations to facilitate communication with institutional investors during the IPO process
Along the same lines as the ”testing the waters” process in the USA, regulatory changes have been made to allow contact with institutional investors at an earlier stage than previously possible. In 2024, the first case utilising this system is expected to emerge, and further practical experience is eagerly awaited.
Revision of listing maintenance standards for the Tokyo Stock Exchange Growth Market
The Tokyo Stock Exchange Growth Market is primarily intended for emerging companies to list, but there are cases where listed companies fail to achieve growth and remain stagnant due to an inability to raise new funds. The average market capitalisation of companies at the time of IPO on the Growth Market is approximately JPY15 billion (in 2023), which is relatively small, and many of these companies are unable to maintain this level after listing. With a small market capitalisation, these companies are less likely to attract institutional investors, and their trading volume also remains low, making it difficult to secure sufficient funding. In response to this situation, the Tokyo Stock Exchange is considering requiring companies listed on the Growth Market to achieve a market capitalisation of JPY10 billion within five years of listing as part of a review of listing maintenance standards for growth markets. As of April 2025, this revision remains under discussion, and future developments will be closely watched.
As the regulations surrounding Japan’s capital markets have changed rapidly in recent years, the country is reaching a turning point in terms of attracting foreign investors.
Other Recent Trends in Japanese Capital Markets
In Japan, the disclosure rules for listed companies were revised in January 2023, and mandatory disclosure of sustainability information has been required starting with the annual securities reports for the fiscal year ended 31 March 2023. On March 2025, the Sustainability Standards Board of Japan (SSBJ), established by the Financial Accounting Standards Foundation, released the final version of disclosure standards for sustainability information in Japan, which is generally consistent with the global standards IFRS S1 and S2 released by the International Sustainability Standards Board. Japanese companies will prepare the disclosure of sustainability information in annual reports while referring to the SSBJ standards. Currently, a working group established in the Financial Service Agency of Japan is discussing how to ensure the reliability of sustainability information, and we need to continue to closely monitor the discussion.
With effect from 1 April 2025, companies listed on the Prime Market of the Tokyo Stock Exchange have been required to disclose their financial results and timely disclosure information in English. While English-language disclosure has been expanded among listed companies in the Prime Market in recent years, foreign investors have still pointed out the need for improvement in the asymmetry of information between domestic and foreign investors due to differences in the amount of information in, and the timing of, disclosures between Japanese and English ones, which have been restrictions on investment. It is expected that further enhancement of English-language disclosure will attract more foreign investors to listed companies on the Prime Market of the Tokyo Stock Exchange.
Recently, there have been some cases of Japanese listed companies that offered bond-type class shares with listings to a stock exchange, such as SoftBank Corp’s case in November 2023 and November 2024. Bond-type class shares are a hybrid security that allows for equity financing with no dilution of the voting rights of common shareholders. In addition, an important feature of these cases is that bond-type class shares are listed on a stock exchange, which allows individual investors to invest in them. While there are limited cases for now, we should keep a close eye on whether this will become an important option for equity financing by Japanese listed companies in the future.