Tokyo Stock Exchange mandates force Japanese firms to prioritize capital efficiency over cash hoarding

Foreign trading volume in Japanese equities hit a record high last year, reaching roughly ten times the level of a decade ago. This surge in volume is the result of a shift in corporate behavior: Japanese companies are prioritizing capital efficiency over the preservation of idle cash. This transition was accelerated by the Tokyo Stock Exchange, which in 2023 called on listed companies to assess their cost of capital and present clear growth strategies. The move forced companies to align with global standards, resulting in increased dividends and share buybacks that supported rising stock prices.