This week the Tokyo Stock Exchange launched its biggest shake up since 1961 in a bid to attract foreign investors. The exchange has scrapped a “cumbersome system of four separate boards” for a more streamlined split into three new sections – “prime, standard and growth”, say Eri Sugiura and Leo Lewis in the Financial Times.
A key part of the plan is to make prime a more exclusive category than the unwieldy “first section” it replaces. That includes tougher requirements on market capitalisation and corporate governance (an area in which Japan has long lagged).
One-third of board seats are supposed to be held by outside directors. Such rules are meant to prod firms towards reform. But numerous loopholes have disappointed critics, with companies let into prime even if they fail to qualify so long as they show how they plan to do so “at some unspecified point in the future”. The reform looks to be a “squandered opportunity”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Cheap yen, cheap stocks
But other developments could draw foreign investors to Japan. Core consumer inflation is still running at just 0.6% per year, so the Bank of Japan is sticking to its policy of ultra-loose money, unlike other central banks. That includes unlimited purchases of government bonds to keep borrowing costs low, meaning that overseas currencies offer higher rates. That’s prompting bond investors to sell the yen, which has slumped to a seven-year low against the dollar.
Loose policies and a weak yen should be a tailwind for stocks. “Taking comparative rates of inflation into account, the yen has halved in value against the dollar since 1995, taking it back to levels not seen since the early 1970s,” says Peter Tasker in Nikkei Asia.
That makes Japanese products and services look “extraordinarily cheap”. That will incentivise the onshoring of supply chains – a theme in vogue at the moment – as well as “the mother of all tourist booms” once global travel picks up. The “bargains” on offer in the “great Japanese discount store… will not be there forever”.
That said, long-term investors still need to see economic reforms, not a cheap currency. Tokyo has been “courting a weak yen” for at least two decades, says William Pesek, also in Nikkei Asia. That has delivered “record profits” for export-oriented businesses, but it has also depressed wages, acted as a drag on innovation and investment, and reduced “the urgency to restructure the economy”.
In 2013, then-prime minister Shinzo Abe promised bold changes to end Japan’s stagnation. But of the “three arrows” in his programme – easier money, fiscal reform and less red tape – only the monetary one “was fully deployed” and now even “that one is falling to earth” along with the yen. “If the secret of success was a weak currency, then Argentina and Venezuela would be booming.”
-
How cancelling unused direct debits could boost your pension by £37,000A new year refresh of your spending could save you money and help boost your pension pot.
-
NS&I cuts interest rates on 8 savings accountsNS&I will now offer less attractive interest rates for customers wishing to lock their savings away to grow for one, two, three or five years.
-
'Investors will reap long-term rewards from being bullish on UK equities'Opinion Nick Train, portfolio manager, Finsbury Growth & Income Trust, highlights three UK equities where he’d put his money
-
The graphene revolution is progressing slowly but surely – how to investEnthusiasts thought the discovery that graphene, a form of carbon, could be extracted from graphite would change the world. They might've been early, not wrong.
-
A strong year for dividend hero Murray International – can it continue its winning streak?Murray International has been the best-performing global equity trust over the past 12 months, says Max King
-
The shape of yields to comeCentral banks are likely to buy up short-term bonds to keep debt costs down for governments
-
The sad decline of investment clubs – and what comes nextOpinion Financial regulation and rising costs are killing off investment clubs that once used to be an enjoyable hobby, says David Prosser
-
How to profit from the UK leisure sector in 2026The UK leisure sector had a straitened few years but now have cash in the bank and are ready to splurge. The sector is best placed to profit
-
Who won the streaming wars?The battle of the TV and film streaming giants for dominance looks to be entering a final phase. The likely winner may surprise you, says Simon Wilson
-
'Investors should expect a good year for equities'Opinion The economy is positive, and investors are still cautious, says Max King
