Launched in March 2023, the Tokyo Stock Exchange’s Value Up Program is aimed at pressuring listed companies to improve capital efficiency, reduce cross-shareholdings, and boost investor returns, with the broader goal of increasing valuations for Japanese-listed companies. However, the TSE has not set firm targets.
Instead, going forward five years, the exchange wants to create a market in which the Value Up Program is no longer seen as something special, but as the norm. In an interview with Hedge Fund Alpha, Haruyuki Yamashita, CFA said setting numerical targets like market capitalization or return on equity wouldn’t be appropriate. He believes those outcomes should be the natural consequences of such a market.
Haruyuki Yamashita is the Deputy General Manager & Head of Policy Engagement, New York Office . Prior to his current role which he took up in May 2023, Yamashita worked for over a decade at the Japan Exchange Group, the parent company of the TSE. Hedge Fund Alpha had the pleasure of meeting Yamashita, at his office in Manhattan.
Compliance is soaring… sort of
Data from the TSE reveals that more than 90% of Prime Market companies in Japan have disclosed plans regarding “management conscious of cost of capital as stated in the Value Up Program. However, critics argue many of those filings are merely exercises in checking an important box in their plans. In fact, Yamashita feels about 70% of those disclosures either miss the market entirely or leave room for improvement, and the TSE is taking steps to enforce real implementation of these plans.
“To address this issue, we published what we call the Best Practice Compilation, a guideline that features actual company disclosures that have been well received by investors,” Yamashita said. “We hope companies will refer to this compilation as they work to improve the quality of their disclosures.”
False starts
Historically, Japan has seen false dawns in which governance reforms fizzled out. However, Yamashita is confident that the current market transformation is permanent, despite her sense that 70% of governance disclosures miss the market or could be improved. For one thing, the current economic environment has experienced some significant structural changes that make this time look different.
“The exit from the deflationary environment is bringing a new discipline to corporate management,” Yamashita explained. “For example, in the food retail industry, companies used to be very reluctant to pass higher costs on to consumers. Instead, they tended to absorb severe cost pressures themselves. However, after decades of deflation, corporate mindsets have begun to change.”
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