A New Index of Top Listed Companies Attracts Investors to Japan’s Market

An Institutional Investor Sponsored Report on Japan Exchange Group

The JPX-Nikkei Index 400 is a new stock index jointly developed by the Japan Exchange Group and Nikkei Inc. to stimulate investor interest in the Japanese equities market. Moriyuki Iwanaga, Senior Executive Officer of the Japan Exchange Group (JPX), recently discussed the strategy behind the index and its performance so far with Institutional Investor.

Early this year the Japan Exchange Group launched the JPX-Nikkei 400, a new index based on the performance of 400 selected “elite” Japanese companies. Why did the Japanese equities market need a product like this?

The overall Japanese stock market has been stagnant for more than ten years. However, looking more closely, we found that, unlike the market as a whole, there are many attractive Japanese companies which have good performance in their businesses and care about investors’ viewpoint. Traditional indices like TOPIX, which covers all major stocks, might not have been representing such a movement. We wanted to make the Japanese market more appealing to investors by focusing on these “good” companies and grouping them into an index of the top 400 companies. That also should result in a “virtuous circle” for the market overall as management of other Japanese companies tries to improve performance to become part of the index.

How is the Index structured? What are the criteria for selecting the 400 companies in it?

The index is designed to include companies that prioritize capital efficiency, profitability, and investor viewpoints, while satisfying practical needs for index-tracking investment. Satisfying practical needs is important because, by attracting “real money” to this index, companies seriously think about this index and put the concept of the index to work.

How has the JPX-Nikkei 400 performed so far? Is it attracting the interest of investors as expected?

Since start of the calculation on January 6, 2014, its performance has been good, compared to other Japanese major indexes (TOPIX and Nikkei 225). Investors’ responses are very positive. It is regarded, together with other governmental initiatives such as a stewardship code for institutional investors, as a measure that is revitalizing the Japanese market by changing the mindset of corporate management.

Also, media coverage shows that some Japanese companies are actually starting to take measures to be included in the index. One such company is Amada Co., which has reportedly adopted a 100% payout policy to improve ROE, with an aim to becoming a member of the index. Meanwhile, we often get inquiries from companies about how to be included in the index, and there appears a company which sets entering the index as one of the goals of its mid-term business plan. We feel that Japanese companies have actually started to change their actions triggered by the index. (See figure 2)

Have financial products that are based on the Index—such as ETFs—been created?

More than 20 financial products have been created in the first six months after the launch of the index. These products include:

• Nineteen publicly offered investment trusts have been created by 12 companies, with total assets of 61.9 billion yen (282% growth in 6 months);

• Four index-based ETFs have been listed, with total assets of 151.4 billion yen (732% growth in 6 months);

• The index has been adopted as one of the passive benchmarks used by the Government Pension Investment Fund (GPIF), the world’s largest pension fund

What are the plans for further expansion of the JPX-Nikkei 400?

Futures market will be started on November 25 this year at the Osaka Exchange. Also, as we are receiving keen interest from foreign investors, we hope ETFs based on the index will be listed outside Japan in the near future.

Moriyuki Iwanaga

Senior Executive Officer

Contact Information

Japan Exchange Group, Inc.

Corporate Communications

Tel: +81-3-3666-1361

e-mail: index@jpx.cp.jp