Japan: A Capital Markets: Domestic Overview
In 2025, Japan's stock market navigated a landscape of heightened uncertainty amid persistent global trade tensions. While these factors contributed to ongoing volatility in global markets, their direct disruptive effect moderated over the course of the year, even as broader geopolitical and macroeconomic concerns continued to weigh on investor sentiment in Japan, following the Nikkei’s strong performance in the preceding year.
Despite this global uncertainty, the Japanese IPO market demonstrated resilience throughout 2025, maintaining a solid number of listings. The prevailing trend continued to favor smaller offerings. Notably, the year saw sustained interest in listings from diverse sectors, particularly deep-tech and sustainability-focused businesses, broadly mirroring the trends observed in the previous year.
Alternative pathways to public listing continued to gain traction in 2025. While the Tokyo Pro Market remained an important stepping stone to the Main Market, increased attention was also given to spin-off IPOs and other structurally innovative listing formats. This diversification in IPO execution reflects a broader strategic shift among corporate groups seeking flexible capital markets solutions while enhancing the independence and market visibility of their businesses.
Furthermore, the unwinding of cross-shareholdings among listed companies accelerated in 2025. This practice, driven by the pursuit of greater transparency in corporate governance and the maximisation of corporate value, was particularly evident among blue-chip companies and financial institutions.
Against the backdrop of a challenging global economic environment, private investments in public equity (PIPEs) continued to be utilised by Japanese listed companies not only as a means of addressing business or financial difficulties, but also increasingly as a proactive financial strategy. In particular, PIPE transactions were employed to enhance balance sheet flexibility, fund strategic investments and facilitate shareholder restructuring.
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. Additionally, 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. Further 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 method was implemented, and several other cases have been announced since then.
Revision of listing maintenance standards for the Tokyo Stock Exchange Growth Market
The Tokyo Stock Exchange Growth Market is intended primarily for emerging companies to list, but some 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 has been around 15 billion yen in recent years, which is relatively small. Many of these companies are unable to maintain this level after listing. With such 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 has announced revisions to listing maintenance standards which require companies listed on the Growth Market to achieve a market capitalisation of JPY10 billion within five years of listing. As this revision will be take effect in March 2030, the actions and trends of companies listed on the Growth Market and those aiming for future listings are attracting attention.
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
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. In 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. Listed companies in the Prime Market of the Tokyo Stock Exchange will be required to disclose sustainability information in accordance with SSBJ standards at earliest FY 2027/3 depending on their market cap. Since detailed rules as to how to ensure the reliability of sustainability information is still under the discussion while a working group established in the Financial Service Agency of Japan suggests an outline, we need to continue to closely monitor the discussion.
Effective 1 April 2025, companies listed on the Prime Market of the Tokyo Stock Exchange are 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 highlighted the need for an improvement due to the asymmetry of information between domestic and foreign investors, in part caused by the differences in breadth of information in, and timing of, Japanese and English disclosures, leading to 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.
The laws and regulations related to transactions involving listed shares of Japanese companies, such as rules as to large shareholding reports and tender offers in the Financial Instruments and Exchange Act of Japan, have been amended in light of recent practices of M&A and engagement with investors or so. These amendments are scheduled to take effect on 1 May 2026. Furthermore, disclosure requirements related to stock-based compensation have also been revised to reduce disclosure burdens, with further amendments planned. For overseas investors, when investing in or trading shares of Japanese companies, especially listed stocks, it is essential to understand the latest regulatory developments.