Japan's stock exchange has unveiled a record revamp of the benchmark Topix index, with almost 700 stocks at risk of ejection from a $1 trillion index. Spearheaded by Japan Exchange Group chief Hiromi Yamaji, the reform aims to improve corporate valuations and shareholder returns. The first phase last year reduced constituents from 2,200 to 1,700.
The new rules, based on relative performance, require companies to rank within the top 97% by free-float market capitalization or face removal. A review found 683 constituents failed to meet criteria, while 35 new companies will be added. Removal triggers automatic selling by passive investors.
The biggest constituents include Mitsubishi UFJ Financial, Toyota, and Soft Bank Group. At the other end are smaller firms like Prored Partners and Phil Company. Changes to bottom performers will happen gradually, with full removal scheduled by July 2028.
JPX expects the Topix to ultimately contain at least 986 companies, down from 1,636. Despite the reduction, analysts warn the impact on overall market liquidity may be modest, as excluded stocks represent less than 3% of total market capitalization. The reform could promote broader value creation across corporate Japan, according to UBS analysts.
Source: Financial Times Markets · Summarized by HeadlinesBriefing