JAPAN Trends and Developments Contributed by: Raku Raku, Gen Takahashi, Yoshihiro Morisato and Taku Matsumoto, Anderson Mōri & Tomotsune
hibited from being the subject of patent applications in other countries, and penalties may be imposed for the violation of this rule. Since May 2024, all of four pillars of the ESPA have come into force. The ESPA is already having an impact on relevant domestic and overseas businesses in terms of both regulations and support. Businesses should consider the effects of the ESPA, particularly when acquiring or investing in Japanese companies that are engaged in sensitive businesses related to national defence. The Act on the Protection and Uti - lization of Critical Economic Security Information (the CESI Act) was also ratified and came into force in May 2025. It provides for the establishment of a new secu - rity clearance system in the economic security sector, and both international and Japanese companies are keeping a close eye on the content and extent of the impact of this new legislation. Reform of the Tokyo Stock Exchange Until April 2022, the Tokyo Stock Exchange (“TSE”) comprised four market divisions: First Section, Sec - ond Section, Mothers and JASDAQ (consisting of two sub-markets, Standard and Growth). The concept of each market division was ambigu - ous, which hampered convenience for many inves - tors. Specifically, as well as there being an overlap between the intended uses of the Second Section, Mothers and JASDAQ markets, the concept of the First Section was unclear. Additionally, the market divisions did not provide suf - ficient incentives for listed companies to sustainably increase their corporate value. For example, since the de-listing criteria were significantly less stringent than the initial listing criteria, they did not incentivise listed companies to continue to satisfy the level of quality required at the time of initial listing. Furthermore, since the criteria for transfers to the First Section from other market divisions are lighter than the direct initial listing criteria for the First Section, the system did not encourage transferee companies to proactively increase their post-listing corporate value.
Consequently, the TSE regrouped these four market divisions, creating three new sections: the “Prime Market”, the “Standard Market”, and the “Growth Market”, with effect from 4 April 2022. In accordance with the concept of each new market division, quantitative and qualitative listing criteria have been established for liquidity, corporate gov - ernance and other elements. For example, in terms of liquidity, to be listed on the Prime Market, an entity must have at least 800 shareholders, a JPY10 billion tradeable share market cap and a JPY20 million aver - age daily trading value. Further, to ensure constructive dialogue with institutional investors, listed companies in the Prime Market must maintain “public market control” by maintaining a tradeable share ratio, with so-called stable shareholders holding less than two- thirds of shares, and by appointing one-third or more outside directors. Since these reforms, approximately 1,800 companies (ie, just under 50% of companies listed on the TSE as of April 2022) opted for the Prime Market. Several hundred of these were allowed to remain on the Prime Market as a transitional measure even though they did not meet the Prime Market listing cri - teria. Such transitional measures ended in February 2025, with the new listing criteria becoming applicable to all companies having a record date falling on or after 1 March 2025. For this reason, it appears that many of the companies were forced to go through with M&A deals before the deadline. Those unable to meet listing requirements may be delisted in October 2026 or later. Sustainable Development Goals (SDGs)/ Environmental, Social and Corporate Governance (ESG) Over the past few years, the SDGs and ESG concepts have spread rapidly in Japan, affecting legislation and practice. For example, on 13 September 2022, the Japanese government published the “Guidelines for Respect for Human Rights in Responsible Supply Chains” (“the Guidelines”) to more clearly explain and promote efforts to respect human rights, as required by the United Nations Human Rights Council in is “Guiding Principles on Business and Human Rights” (“the Guiding Principles”), published in 2011, and to
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