Ex-Banker Behind $1.7 Trillion Japan Rally Says It’s Just Starting

The man who helped spark a nearly $2 trillion rally in Japanese stocks says the rebound is just getting started.

Hiromi Yamaji, whose unconventional reforms and globe-trotting sales pitches have helped make Japan one of the world’s best performing equity markets, sees no reason why the nation’s stocks can’t keep rising after reaching an all-time high this month.

“These records happen regularly in other places like the US,” said Yamaji, the head of Japan Exchange Group Inc., operator of the country’s bourses. “I would like to make it so it’s not an unusual thing for the market to hit a new record high.”

The sea change in how global investors view Japan has been years in the making, but few have done more to revive interest than Yamaji. His push to “name and shame” companies that fail to boost shareholder value has led to a surge in dividend increases and share buybacks. Going forward, he sees an opportunity to attract more Asia listings and make Japan a regional hub as investors sour on China.

Yamaji’s candor about the need for further reform suggests the former Nomura Holdings Inc. investment banker isn’t resting on his laurels after 15 months on the job. Many challenges remain, including getting more of Japan’s 3,900-plus listed companies to take corporate governance seriously, while sustaining an equity surge well into its second year.

“As the market rises, the expectations on us as market operators, especially from investors, get higher and higher,” Yamaji, 69, said in a recent interview before Japan’s stock indexes hit their latest peaks. “This is still a critical point for us.”

Yamaji has accomplished much already. Japanese stocks have been the top performers among major developed markets this year, with the Topix index up 20%. That adds to the 25% return last year, when the gauge was the world’s best. Since Yamaji took over, the market value of companies on the Tokyo Stock Exchange has risen by about 270 trillion yen ($1.73 trillion.)

Foreign investors, many of whom tuned out Japan for decades, have helped drive the gains, with inflows of 7.4 trillion yen in the 18 months to June, according to data from Japan Exchange Group. Foreign inflows last year were the most in records going back a decade.

Analysts cite many factors for the renewed global interest. The weaker yen — down about 10% this year alone versus the dollar — makes Japanese stocks cheaper for foreign buyers. Stronger macroeconomic fundamentals and the return of inflation have also contributed. So has the investor pullback from slumping China, helping Japan surpass the bourses in Shanghai and Hong Kong by market value in US dollars.

Yet investors are also quick to name Yamaji as a powerful lure to the Tokyo Stock Exchange, or TSE.

“I have never seen such a comprehensive plan like the TSE, Yamaji and his team have put forward,” said CJ Morrell, who has nearly three decades of experience working in Japanese equities and recently joined Fiera Capital Corp., a $120 billion Canadian asset manager.

Yamaji has emerged as an unlikely promoter — playing roles normally reserved for diplomats or politicians — to persuade the world to invest in Japan again. By being so vocal, some say he has helped speed up the rate of change by years.

He’s taken on an intensive travel schedule — visiting offices of money managers, while speaking and networking at conferences to engage investors. This year alone, he’s traveled to Malaysia, Singapore and London, with an upcoming trip to New York.

“He’s Japan’s greatest communicator with foreign countries – can you name someone better?” said Alicia Ogawa, a corporate governance expert who advises Japan-focused investment funds.

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A native of Hiroshima and an avid practitioner of the aikido martial art in his youth, Yamaji got his MBA from the University of Pennsylvania’s Wharton School, where classmates included future top executives at Sumitomo Mitsui Financial Group Inc. and SBI Shinsei Bank Ltd. While his aikido days are done, he stays fit playing golf -- maintaining a handicap index of 15. He also jogs on the weekends and climbs the 10 flights of stairs to his office. Evening passions include opera and dining out over French wines, while keeping tabs on his beloved Hiroshima Toyo Carp baseball team.

Open and gregarious, with a breezy confidence honed from running offices and investment-banking teams in London, New York and Tokyo, Yamaji is quick to chuckle and deflect credit for the remarkable changes. He insists he’s just carrying on the work of Japanese officials and former TSE executives. Yamaji is also open to fresh ideas from his younger staff, unusual in the normally rigid corporate hierarchy of Japan.

Many who have met him say his willingness to stay for hours at conferences to network, and respond to personal emails from investors, have bolstered the image of a more open and accountable Japanese market.

“He is one of the few executives who can speak on behalf of Japan,” said Tatsuo Tanaka, the Japan chairman of Apollo Global Management Inc. “He became the CEO of JPX at a very good time.”

Book Value

Yamaji’s biggest impact has been as the public face of a campaign to reduce the number of companies whose shares trade below book value. The metric, typically used by investors to assess if a stock is undervalued, has been instrumental in forcing firms to pay more attention to their share price. The bourse has begun to publicize a list of companies that have submitted plans to improve value, in effect shaming those who haven’t — a powerful motivator in Japan.

Before the push, about 53% of firms on the Topix Index traded below book value. That’s fallen to 45%, according to Bloomberg data. Still, there’s room for improvement — among companies in the S&P 500, only 3% trade below book value.

The initiative has become a catalyst for broader changes. Companies have begun selling off non-core businesses and cross shareholdings to boost their stocks, while others have raised dividends or announced share buybacks. Firms that don’t want to succumb to the public pressure are going private — there was a record volume of management buyouts in 2023.

Those shifts are giving foreign investors more confidence to pivot to Japan as they look for alternatives to China, said Kei Okamura, a portfolio manager at Neuberger Berman in Tokyo.

“If you look at what other options you have in this region, there aren’t that many that have the depth and breadth like Japan does,” said Okamura, who recently met with 70 institutional clients in North America and Europe who were all interested in Japan. “From a geopolitical standpoint, it is a less concerning market.”

The policy shift has become ammunition for activist hedge funds, which point to the TSE guidelines in their reform drives. There have been more than 100 activist campaigns this year, surpassing the number for all of 2023. Some have even called Yamaji Japan’s biggest activist investor, a label he eschews.

“We are neutral, we are market operators, we are open for everybody,” Yamaji said from the 15th-floor board room of the Tokyo Stock Exchange building in the city’s historical financial district. “I’m not going to take the side of activists, but I’m not an enemy either.”

In perhaps the highest form of flattery, TSE’s reforms are being imitated in nearby countries — with South Korea introducing policies to help boost corporate valuations, in an initiative similar to Japan’s. Some have also suggested that China’s recent guidelines tightening stock listing criteria and urging reform were inspired by Japan’s success.

Challenges Remain

For Yamaji, daunting challenges remain. Numerical targets like price-to-book ratios are simple to understand and track. The next goal is to encourage more substantial and qualitative changes — like more productive board discussions or implementing sustainable growth strategies.

Japan also lags behind countries like the US on many key metrics for corporate value and profitability. Based on return on equity, for example, US companies are twice as efficient as those in Japan.

Then there’s the matter of JPX as a business. One of Yamaji’s goals is to make Japan top of mind in Asia for capital needs or investment, creating a regional financial hub akin to Singapore or Hong Kong. It’s been a long-stated ambition of Japanese policymakers as well, but has always been stymied by concerns about the language barrier and higher taxes.

So far, results at JPX, as the Japan Exchange Group is known, have been mixed. The stock exchange has attracted just five cross-border public listings since 2022 — well short of its goal of having 20 by March 2025. The exchange said it has about 20 overseas listings in the pipeline, and recently launched an initiative to support Asian companies to go public in Japan.

“We are doing what we can, but the government and regulators are also involved in encouraging this,” Yamaji said.

JPX has corporate governance issues of its own. Only three of its 15 directors are women, even as the rest of Japan slowly becomes more diverse. Oki Matsumoto, a former TSE director, said the lack of investor representation on the board is also problematic.

The list of challenges seems fitting for the peripatetic executive, who has only taken one sick day in the last 26 years and seems excited about the prospect of more markets diplomacy.

Yamaji, who likes to kill time on long flights watching blockbuster movies like “Harry Potter” or “The Matrix,” joked that he had to spend a March trip to London preparing for meetings and speeches instead.

“I worked almost the whole time. Even those around me said ‘wow, your job looks really hard!’”