Japan: A Capital Markets: Domestic Overview

Recent Developments and the 2026 Outlook

Introduction

The year 2025 was a period for Japanese capital markets characterised by robust equity performance juxtaposed with significant currency volatility. The Nikkei Stock Average reached record highs by year-end, recording an annual gain of approximately 26%. However, corporate management faced the dual challenge of maximising equity value while navigating a volatile foreign exchange environment, where the USD/JPY rate fluctuated around 156 yen amidst speculation regarding US interest rates and the Bank of Japan’s policy normalisation.

Beyond these macroeconomic indicators, 2025 marked a notable shift in the regulatory landscape. This report analyses five recent legal and regulatory developments and changes anticipated in 2026 – listing maintenance, unwinding of policy shareholdings, disclosure modernisation, sustainability standards, and fundraising regulations.

Listing maintenance: the “grace period” has ended, and Growth Market criteria are being raised

A major practical change took effect in March 2025. Transitional measures that had eased continued listing compliance after the Tokyo Stock Exchange’s 2022 market restructuring have been expiring, and the regular continued listing criteria apply for record dates on or after 1 March 2025. Companies that fail those criteria generally enter an improvement period (typically one year; six months for certain trading volume criteria), and if they do not regain compliance they can be delisted after a further designation period.

The Tokyo Stock Exchange (TSE) is also tightening the Growth Market’s continued listing criteria. In September 2025 it outlined revisions under which a Growth Market company must have a market capitalisation of at least JPY10 billion once it has been listed for five or more years (currently: JPY4 billion once it has been listed for ten or more years), with the revised criteria scheduled to apply from fiscal years ending on or after 1 March 2030. This underscores that post listing execution is now central.

Reflecting this stricter scrutiny on valuation and liquidity, the number of IPOs in 2025 stood at 66, a decrease from the previous year. The point for boards is no longer only “how do we maintain our listing?” As the maintenance bar rises, corporate strategy in 2026 increasingly needs to evaluate the listing decision itself –whether an IPO is the optimal path in the first place, whether to remain public, or whether alternative capital and control solutions are value maximising. That menu includes (i) remaining private (and accessing private capital), (ii) strategic M&A (as buyer or seller), (iii) market segment change where appropriate, and (iv) take private structures such as management buyouts (MBOs). The listing status is becoming less a default destination and more a strategic tool to be justified against measurable costs, governance demands, disclosure obligations and liquidity realities.

Accelerating the unwinding of policy shareholdings

The reduction of policy shareholdings (including cross shareholdings) continued to accelerate through 2024–2025. The Corporate Governance Code has urged issuers to reduce such holdings and to explain and test the economic rationale for them. In some sectors the stance has become explicit: several major non life insurers have set out plans to eliminate policy shareholdings.

Since 2023, the Financial Instruments and Exchange Act of Japan (FIEA) has required a company that holds policy shares to provide concrete disclosures about the background and terms of any commercial transactions or business alliances between that holder and the issuer. Furthermore, the recent ordinances under the FIEA (implemented in early 2025 and applicable to annual securities reports for fiscal years ending March 2025, and thereafter) require enhanced issuer-by-issuer disclosure when a company changes the stated purpose of holding shares from “policy” to “pure investment”. These disclosures must include the reason for the change and the holding-and-sale policy going forward and must cover the five most recent fiscal years. The guidance also clarifies that shares whose sale is impeded by the holder’s relationship with the issuer should not be classified as “pure investment”. In practice, this pushes holders toward “sell or explain”, reshaping secondary supply and engagement.

Periodic disclosure: statutory Q1/Q3 quarterly reports abolished; Prime English disclosure now mandatory

Regulatory reforms to reduce administrative burdens while enhancing global accessibility took firm root in 2024-2025.

• Abolition of Statutory Quarterly Reports: Effective 1 April 2024, the statutory quarterly securities reports (under the FIEA) for Q1 and Q3 were abolished and unified into the securities exchange-based “Earnings Reports” (Kessan Tanshin). While this allows companies to omit certain detailed items like cash flow statements in Q1/Q3 (making them voluntary), it places a premium on the consistency and quality of voluntary disclosure.
• Mandatory English Disclosure: From April 2025, Prime Market companies are required to disclose financial results and timely disclosure information in English simultaneously with the Japanese release. This mandate is expected to significantly reduce information asymmetry for international investors.

Sustainability standards: the roadmap to mandatory assurance

In March 2025, the Sustainability Standards Board of Japan (SSBJ) published Japan’s sustainability disclosure standards, designed to deliver outcomes aligned with ISSB’s IFRS S1 and IFRS S2. In January 2026, the FSA’s working group set out a phased roadmap under which Prime Market issuers (targeted as those engaging in constructive dialogue with global investors) would be required to prepare Annual Securities Reports in accordance with the SSBJ standards.

Mandatory application is proposed to begin with Prime issuers whose market capitalisation – calculated as the average of the market cap at each fiscal year end over the prior five fiscal years – is: (i) JPY3 trillion or more (FY ending March 2027), then (ii) JPY1–3 trillion (FY ending March 2028), and (iii) JPY0.5–1 trillion (FY ending March 2029). Application to Prime issuers below JPY0.5 trillion will be considered later. A transitional two-step disclosure mechanism is envisaged for two years from each cohort’s start date.

Mandatory third-party assurance is expected to apply from the fiscal year following the first mandatory application for each cohort (ie, FY ending March 2028/2029/2030, respectively). The mandatory assurance scope would be limited for the first two years (initially Scope 1–2 emissions, governance and risk management), with any expansion – including to Scope 3 – reserved for later review. Accordingly, 2025–2026 should be treated as a rehearsal period to build data governance and internal controls capable of supporting scalable, audit-ready sustainability information.

Fundraising regulations: expanding the small amount offering exemption

A key “work in progress” heading into 2026 is the FSA’s review of disclosure requirements for smaller offerings. In December 2025, the FSA’s working group published a report indicating a direction toward raising the exemption threshold for filing a securities registration statement in public offerings to general investors from JPY100 million to JPY500 million. The same report suggests that, if that threshold is raised, the existing “small offering” framework should be revisited (including a potential redesign of its amount range) to balance investor protection and disclosure burden.