Tokyo Stock Exchange Initiative on Cost of Capital and Stock Price Conscious Management

Summary

The Tokyo Stock Exchange (TSE) launched a Request in March 2023 asking Prime and Standard Market companies to pursue “management that is conscious of the cost of capital and stock price.” The move complements market restructuring in April 2022 and targets improved capital efficiency (ROE) and valuation (PBR) across Japanese listed firms.

The Request emphasises three pillars: top-down leadership from management and boards, prioritising sustainable growth (investment in R&D, people and strategic CAPEX) alongside shareholder returns, and clearer, investor-friendly disclosure to enable constructive dialogue. The approach is voluntary rather than rule-based, relying on peer pressure and examples to drive change.

Since the Request, TSE has published a List (from January 2024) of companies that disclosed under the Request, and introduced Best Practices and anonymised poor examples to raise disclosure quality. Disclosure rates in the Prime Market exceeded 90% by March 2025 with over 60% having updated disclosures by July 2025, while Standard Market progress lagged. TSE also added an opt-in tagging mechanism to help investors find companies seeking greater investor dialogue. Market indicators show modest improvement: average PBR rose from 1.1 to 1.4 and ROE from 8.4% to 9.0% over roughly three years.

Key Points

TSE’s Request (March 2023) asks companies to understand and act on their cost of capital and stock price to boost mid- to long-term corporate value.
The initiative stresses top-down implementation, sustainable growth investment, and investor dialogue rather than prescriptive rules.
TSE uses voluntary disclosure, a public List, Best Practices, and anonymised poor examples to leverage peer pressure and cultural incentives.
Prime Market disclosure rates exceeded 90% by March 2025; Standard Market remains around 50% disclosure.
More than 60% of respondents had updated disclosures by July 2025, indicating ongoing efforts rather than one-off statements.
Best Practices (55 case studies) and seminars have been effective in lifting disclosure quality in many firms.
TSE analysis suggests market rewards higher-quality and sustained disclosure: companies in Best Practices outperformed peers post-Request.
Market metrics improved modestly over three years (PBR from 1.1 to 1.4; ROE from 8.4% to 9.0%), but TSE stresses ongoing reform and market dynamism.

Why should I read this?

If you follow Japanese equities, corporate governance or investor relations, this is proper must-know stuff. TSE’s push changes how companies report, prioritise investment and interact with investors — and that can alter valuations and capital allocation across the market. We skimmed the detail so you don’t have to; the headlines tell you where the pressure points are and why investors are paying attention.

Context and Relevance

This initiative sits at the intersection of Japan’s broader governance reforms and its economic shift from cost-cutting to growth-led policy. By encouraging firms to measure and manage cost of capital, TSE aims to close gaps versus global peers in ROE and PBR and to attract international investors through clearer English disclosure and governance standards.

The design—voluntary, top-down leadership combined with visible peer examples—leverages Japanese corporate culture to prompt real change without heavy-handed regulation. The programme’s success will depend on continuing improvements in disclosure quality, investor engagement (especially for small caps), and market mechanisms that enable exits and reallocations when necessary.