If you want to make steady gains in the Japanese stock market, you first need to touch the “central nerve” of the market — the Japanese Stock Exchange Group (NYSE). Wind data revealed that in early March 2024, the total market value of Japanese stocks listed on the Japanese exchange jumped to over ¥1 trillion, rightfully occupying the third largest seat in the world, following in the footsteps of the United States and China.

As one of the Asian exchange giants, the stock exchange is not only a major headquarters for many companies to list and trade, but also a focal point for investors. It is home to world-class brands such as Toyota, Sony, and many emerging industries and small and medium-sized enterprises.

Understanding the history of the stock market, the status of listed companies, the size of market capitalization and industry distribution is essential for us to be familiar with the entire Japanese stock market. So, if you want to stay on the edge of the Japanese stock market, let's take a look at its exchanges in full!

History of the stock exchange

Going back in history, the story of Japanese stock exchanges can be traced back to the Meiji Restoration period at the end of the 19th century, when joint-stock companies began to emerge. In 1878, the Tokyo and Osaka Stock Exchanges were established, marking the official launch of the modern Japanese stock market. In the beginning, the exchange, although small, provided a financing stage for the railway, mining and other industries.

Over time, especially the rapid development of industrialization, the Japanese economy has skyrocketed, and the stock market has boomed. After World War II reconstruction and rapid growth, the Japanese stock market expanded rapidly, attracting the attention of domestic and foreign capital. However, it also experienced the heyday of the bubble economy of the late 1980s and the subsequent twenty years of loss, but the influence of the stock exchange in global financial markets has always moved in volatility.

Entering the 21st century, in particular, the Tokyo Stock Exchange partnered strongly with the Osaka Stock Exchange in 2013 to establish the Japan Exchange Group, further enhancing market integration and competitiveness. Today, the Tokyo Stock Exchange focuses on spot trading such as stocks, ETFs and bonds, while the Osaka exchange focuses on derivatives such as futures, options, and more.

With more than a decade of bull market activity in Japanese equities, the stock market share of the global financial markets is gaining momentum and continues to attract investment from all walks of life.

The business structure and types of trading on the NYSE

Let's take a look at the stock exchange's business structure and types of trading. Stock-based spot trading is the mainstay of the Japanese securities market, which is mainly carried out by the Tokyo Stock Exchange. The Tokyo Stock Exchange has four core markets, namely Prime Market, Standard Market, Growth Market and TOKYO PRO Market, which is designed for professional investors.

As of the end of February 2024, the Tokyo Stock Exchange had 3990 listed companies with a total market capitalization of about ¥1014 trillion, according to the NYSE's official website. Of these, 1655 companies stand in the stable and strong Prime market, most of them with relatively strong profitability and globally recognized corporate governance, attracting the eyes of many international investors. This block occupies a niche in the market capitalization of the entire listed company, with a total market value of about 963 trillion yen, accounting for an astonishing 95%.

On the other hand, the Standard market provides a showcase for those well-established companies with a certain level of visibility and business base. Approximately 1613 companies are actively traded here, with a combined market capitalization of about 30.5 trillion yen, accounting for about 3% of the total market capitalization of all listed companies, although the proportion is not large, they are also An indispensable source of strength for the Japanese stock market.

The Growth Market is a gathering of vibrant and innovative emerging companies, open to businesses with high growth potential and unique proprietary technologies and knowledge. At present, there are about 566 listed companies in the market, with a total market value of about 7.5 trillion yen. Despite a share of less than 1% of the market capitalization of all listed companies, a rising upside suggests that more is possible.

In addition to being the main battleground for stock trading, the Tokyo Stock Exchange is also active in other types of investment in bonds, funds, etc. In this segment of the bond market, the Tokyo Stock Exchange has a two-tiered structure: one tier is a convertible debt market for ordinary investors, and the other is a professional bond market designed for professional investors. It includes a variety of types of convertible debt and treasury products, ensuring that all types of participants can find suitable investments Funding channels.

For fund products, the Tokyo Stock Exchange offers a wide selection of indexed products, including but not limited to ETFs, ETNs, REITs, and infrastructure sector investment funds. These indexes offer a wide range of products, including both scale and stratified indices by market size and market level, as well as industry indices and varieties broken down by different industries and product categories.

As for the derivatives market, the Osaka Exchange, which is mainly operated by another major edition of the NYSE, offers a range of futures and options trading services covering a wide range of products such as index futures, index options, Treasury futures, Treasury options, and individual stock options. Its coverage of underlying assets is broad and deep, including not only stock and bond price indices and volatility indices for domestic developed markets, but also emerging markets around the world.

Structure of listed companies on the NYSE

In the Japanese market, stock trading is the mainstay of all types of investments. Next, we will introduce the main listed companies and stock structure of the stock exchange.

According to wind data, from the industry distribution of listed companies, similar to the economic industry structure of Japan, the number of listed companies is the top 3 of the total market capitalization and the number of companies, respectively, consumer, industrial and information technology options.

The top five companies with the largest market capitalization represent the leaders in their respective fields, such as Toyota Motor, which is the leader in consumer choice, Mitsubishi Jutland Financial is important in the financial sector, Tokyo Electronics and Gaines excel in the information technology sector, and Japan Telephones are stable in telecommunications services. THE TREASURE TROVE OF THE INDUSTRY.

In terms of the holding structure, foreign investors accounted for the largest share at about 30%, followed by investment trusts, accounting for about 23%, which also includes some of the Bank of Japan's holdings. This was followed by corporate entities and individual investors, accounting for around 20% and 18% respectively.

In terms of share trading volume, foreign investors are far ahead with a high percentage of around 60%. Individual investors account for about 20%, while other types of investment entities account for no more than 5%. Although the Bank of Japan holds certain shares through investment trusts, the amount of actual contributions per year is relatively limited.

Looking at IPOs that contribute fresh blood to the market, 79 companies listed on the NYSE in 2023 are up slightly from the previous year, and the total IPO financing in 2023 is about ¥1164 billion, a significant increase from 2022. Overall, IPO issuance on Japanese exchanges has been relatively slow, and while listed companies are in the top five or even top three globally by total market capitalization for all years, IPO financing rarely appears in the top five globally.

Finally, to summarize,

As if it were a time machine to bear the glory years and ups and downs of the Japanese stock market, it has now entered the core circle of global financial markets. There are all kinds of listed companies, from Toyota, Sony to potential new stars in the emerging industry, showing themselves on the big stage of the stock exchange, attracting funds from all sides.

Today's stock exchange not only ranks among the top three global equities markets, but also offers investment opportunities in various derivatives markets, which fully demonstrates the deep underpinnings and broad coverage of the Japanese financial market. Despite the big ups and downs of bubble economies in the past, the stock exchange is relying on constant reform and innovation, especially with the Tokyo Stock Exchange in strong partnership with the Osaka Stock Exchange, showing tremendous resilience and growth momentum.

As Japanese stock markets have continued to go bullish in recent years, foreign investors have been increasingly investing, which may mean that the impact of the stock market on global financial markets is likely to play a significant role in the future.

So, for those who want to allocate assets around the world, it is a good idea to study the business structure of the exchange, the trading products and the characteristics of each of the listed companies, perhaps a “customs cheat” of this dynamic and challenging capital market.