The Japanese Equity Market
Japan has a long history of equity markets, beginning with the establishment of the worlds first modern equity market in 1878. Since then, the Japanese equity market has grown to become one of the largest in the world by market capitalization, with more than 4,000 listed companies, and it is often referred to as the worlds second-largest stock market. Its composition and capital flow are quite different from those of other developed countries, due to its unique economic, political, and institutional features.
The Japanese equity market is dominated by retail and institutional investors alike, with the latter accounting for approximately one-third of aggregate market capitalization. Retail investors traditionally account for a large share of turnover, greater than the average in other markets, and they are the main driver behind market movements. The institutional investor base is composed of a diverse range of investors such as banks, insurance companies, pension funds, mutual funds, hedge funds and domestic corporations.
The Tokyo Stock Exchange (TSE) is the main exchange in Japan. It is the largest in terms of number of shares traded and is the main hub of the Japanese equity market. It is well regulated, with rigorous rules and standards, which ensure that only companies of good standing are listed. There are also other exchanges in Japan, such as the Osaka Securities Exchange, the Nagoya Stock Exchange, the JASDAQ and the Sapporo Securities Exchange.
The Japanese equity market tends to be less volatile than other markets, partly due to the fact that the majority of investments are made by retail investors who are less likely to follow a herd mentality and are more prone to buy and hold. The Japanese equity market has also been subject to structural changes in recent years, as part of the governments efforts to deregulate the industry and open it up to foreign investors. This has had the effect of increasing liquidity and encouraging more foreign investors to enter the market.
The Japanese equity market is highly dependent on the performance of the domestic economy, as most of the listed companies are domestically focused firms. However, the Japanese economy is slowly opening up to international markets, which has provided an opportunity for foreign firms to expand and increase their presence in Japans equity market.
Despite the fact that the Japanese market has historically been dominated by domestic investors, foreign investors have started to make greater inroads into the Japanese equity market in recent years. This has resulted in greater flows of capital into the Japanese equity market, which has had a positive impact on the performance of the market.
Overall, the Japanese equity market is an attractive destination for long-term investors due to its relatively low volatility and its deepening capital markets. It is also an important market for foreign investors to consider as part of their global portfolio. With the increasing participation of foreign investors, the Japanese equity market is likely to become even more attractive in the future.
