The Tokyo Stock Exchange has spent the past decade reshaping Japanese corporate behavior, but in a way that feels distinctly Japanese. Rather than banning long-standing practices outright, it surrounds them with layers of procedure, disclosure, and “please explain” requirements. The result is a style of regulation that preserves “Wa”, or harmony, while steadily raising the cost of clinging to old habits.
The 2023 push for “management that is conscious of cost of capital and stock price” is the clearest example. Faced with a market where nearly half of listed companies traded below book value and sat on bloated cash balances, the TSE did not impose minimum ROE or P/B thresholds. Instead, it “requested” that all Prime and Standard companies calculate their cost of capital, assess whether returns and valuation are adequate, adopt improvement policies at the board level, and disclose those plans and their progress.
On paper, nothing is forbidden: a company can still hoard cash and accept a low valuation. But doing so now means publicly admitting it has no convincing answer to those questions and living under a growing cloud of investor and media scrutiny. The TSE has not said “no”; it has simply made “yes” procedurally and reputationally expensive.
Parent–subsidiary dual listings follow the same pattern. Many markets have tried to eliminate listed subsidiaries under a controlling listed parent. Japan has not. Instead, the Corporate Governance Code and related TSE guidance lean on expectations: where there is a controlling shareholder, boards should be comprised of at least half independent directors, form special committees, and demonstrate that group governance adequately protects minorities. Parent–child listings are still allowed, but they now carry a visible governance surcharge.
Cross-shareholdings, another pillar of old Japan Inc., are treated similarly. The Code does not ban strategic stakes in business partners. It simply requires that each cross-shareholding be reviewed annually at the board level, tested against cost of capital, and disclosed with an explanation of purpose and future policy. Many companies, under that spotlight, have quietly committed to reduction. Again, the TSE’s message is not “you may not,” but “if you insist, be prepared to justify this every single year.”
Recent moves on MBOs and controlling-shareholder buyouts are a continuation of the same design. Insider-led privatizations remain possible, but they trigger heavier procedures: independent committees, fairness assessments framed from the perspective of general shareholders, explanations of why there are no conflicts of interest, and excruciatingly detailed disclosure. Deals that disturb “Wa”, by appearing self-serving or unfair, must now push through a thicket of process.
In everyday Japanese communication, people avoid blunt refusals, relying instead on phrases like “that may be a bit difficult” and expecting the other side to “read the air”. The TSE has embedded that same logic into its rulebook. It almost never utters an outright “no.” Instead, it asks for more analysis, more explanation, and more independent oversight until the path of least resistance runs in a different direction.
That is the “Wa” of financial regulation: not confrontation but carefully engineered friction. Behaviors once taken for granted remain legally possible yet feel increasingly out of tune with where the market, and the rule-maker, expects Japan Inc. to go.
.svg)
