By Itsuki Okuda and Kaname Sugimoto / Yomiuri Shimbun Staff Writers

The Japanese stock market has been vibrant recently, with major stock indexes reaching record highs. However, one worrying trend is becoming clear -- the number of initial public offerings (IPOs) on the Tokyo Stock Exchange is decreasing.

There were 33 IPOs listed from January to September, a drop of more than 30% from the same period in the previous year -- the lowest level in 11 years. The decline is especially conspicuous on the TSE's Growth Market, which primarily features small-scale listings. The reluctance to list IPOs on the Growth Market stems from the fact that newly listed companies tend to struggle to raise funds, as investors are skeptical about the companies' growth.

On Oct. 3, Overlap Holdings Inc. went public at the Growth Market. President Katsuharu Nagata revealed the aim of the listing, saying, "I want to establish a system capable of stably handing over our company's business to the next management."

Overlap Holdings excels in entertainment business such as young adult fiction novels and manga. Its market capitalization has exceeded 28 billion yen as of Tuesday. Overlap Holdings aims to enhance its credibility and name recognition with the listing, hoping that it will enable the company to have an advantage in recruiting personnel.

However, the environment surrounding IPOs has become difficult. The TSE categorizes its market into three markets -- the Prime Market, the Standard Market and the Growth Market -- depending on criteria such as the phase of companies' growth. The number of companies that listed on the Growth Market remained at 22 from January to September, about half compared to 45 companies in the same period the previous year.

Disinclination toward 'small-scale' listings

Investors tend to allocate their capital toward the Prime Market, which comprises many large companies conducting their businesses globally. In contrast, companies listed on the Growth Market are expected to have high growth potential, but most of them have small market capitalizations. Experts point out that these companies often struggle to raise funds post-listing, hindering their growth.

According to the TSE, around 65% of about 600 companies listed on the Growth Market have a market capitalization below 10 billion yen as of Aug. 31. It is said that such companies tend to fall outside the scope of institutional investors, as they seek high investment efficiency. The stock index composed of major Growth Market stocks fell by about 20% from 2022 to this year, showing a stark contrast to the steady rise seen in the broad TOPIX index and indexes related to the Standard Market.

"In recent years, there has been a notable decrease in the number of lead underwriters willing to take on IPOs for companies with smaller market capitalizations," said Ryoji Morimoto of Japan Creas Tax Corp. who is knowledgeable about corporate IPOs. "We can say that there is a situation in which companies are becoming 'refugees' in finding lead underwriters."

Standards to be tightened

To cope with such issues, the TSE in April announced a policy to revise standards for maintaining the listing status at the Growth Market. To maintain the listing status, a company needs to have a market capitalization of at least 4 billion yen when ten years has passed since the listing. From 2030, this criterion will be changed to at least 10 billion yen when five years have passed after the listing.

"Quality should be prioritized over quantity," said Hiromi Yamaji, group CEO of Japan Exchange Group Inc., at a press conference held in late September. "We expect the number of high-quality IPOs that lead to robust growth (of companies) will increase."

The number of new listings on the Growth Market is expected to further decline after the standards become stricter. "It will likely lead to a diversification in growth strategies, such as raising funds without listing or pursuing mergers and acquisitions, instead of seeking IPOs at an early stage," said Choichiro Koguchi of KPMG AZSA LLC.

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This article is from The Yomiuri Shimbun. Neither Dow Jones Newswires, MarketWatch, Barron's nor The Wall Street Journal were involved in the creation of this content.

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October 09, 2025 22:46 ET (02:46 GMT)

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