Speaking of Warren Buffett, who also chased after Japan's stock market, Hiromi Yamaji, the key reformer and CEO of Tokyo Stock Exchange, said that Japan's $1.7 trillion stock market rebound has just begun. He emphasized that there is no reason why the Japanese stock market cannot continue to rise after hitting a historic high in July.

"This kind of record happens often in the US and elsewhere," Yamaji said. "I hope that the market hitting new highs is not an unusual thing."

Global investors' view of Japan has undergone a sea change, but few have done more to rekindle investor interest than Yamaji. He challenged underperforming companies by calling them out by name, leading to a surge in dividends and share buybacks. Looking ahead, as investors grow disillusioned with China, he sees an opportunity to attract more Asian companies to list and make Japan a regional center.

Yamaji is blunt about the need for further reforms in Japan's stock market, a sign that, as a key reformer who served for 15 months as an investment banker at Nomura Holdings before taking office, he isn't content with the status quo. There are still many challenges, including getting over 3,900 listed companies in Japan to take governance seriously while also keeping stock prices rising significantly in the second year.

"As the market rises, especially as expectations of us as a market operator grow higher and higher among investors," the 69-year-old Yamaji said in a recent interview before the Japanese index hit its latest peak. "This remains a critical point for us."

Yamaji has achieved plenty. This year, Japan's stock market has been the best performer among major developed markets, with the Topix index up 20%. Its 2023 return on investment is the highest in the world, at 25%. Under his leadership, the market value of the Tokyo Stock Exchange has increased by about JPY 27 trillion, or about $1.73 trillion.

Foreign investors have fueled the rally in Japan's stock market, many of whom had avoided the country for decades. In the 18 months through June, fund inflows into Japan reached JPY 7.4 trillion, the highest in a decade since foreign capital inflows last year.

(Source: Bloomberg)

Analysts believe there are many reasons why global interest in Japan's stock market has reignited. The weakened yen made Japanese stocks more affordable for foreign investors, and strong macroeconomic fundamentals and rising inflation are among other reasons. Investors withdrawing capital from a sluggish China also played a role in helping Japan's market value, denominated in US dollars, surpass that of Shanghai and Hong Kong exchanges.

Investors are also quickly seeing Yamaji as a powerful draw for the Tokyo Stock Exchange.

"I have never seen such a comprehensive plan put forward for the Tokyo Stock Exchange and Yamaji and his team," said CJ Morrel, who has almost 30 years' experience in Japanese equities and recently joined Canadian asset manager Fiera Capital Corp, which has $120 billion in assets under management.

(Source: Bloomberg)

Yamaji has surprised many by becoming a promoter, often playing the role of diplomat or politician to persuade the world to invest in Japan again. Some say his straightforwardness has helped speed up the pace of change by years.

He has a packed schedule, visiting fund managers' offices, giving speeches at meetings and building a network to attract investors. Just this year, he visited Malaysia, Singapore and London, and is headed to New York.

"He's the most effective person I know in Japan when it comes to communicating with people outside Japan. Can you find anyone better than him?" said Alicia Ogawa, a corporate governance expert who provides advice to Japanese investment funds.

For Yamaji, daunting challenges remain, Bloomberg reported. Targets such as price-to-book ratios are easy to understand and track. The next goal is to encourage more substantive and higher-quality change, such as more effective board discussions or implementing sustainable growth strategies.

Japan also lags behind the US and other countries on many key metrics of corporate value and profitability. For example, US companies are twice as efficient as Japanese companies in terms of return on equity.

Finally, there is the issue of the Japan Exchange Group as a corporation. One of Yamaji's goals is to make Japan the preferred choice for Asian capital needs or investment, creating a regional financial center like Singapore or Hong Kong. This has been a long-standing ambition of Japan's policymakers but has been stymied by language barriers and high tax rates.

So far, the performance of Japan Exchange Group has been mixed. Since 2022, the stock exchange has only attracted 5 cross-border listed companies, far below the target of 20 by March 2025. The exchange said that there are currently about 20 overseas companies preparing to go public and recently launched a plan to support Asian companies listing in Japan.

Yuki Yamamichi said: "We are doing our best, but the government and regulatory agencies are also encouraging this practice."

In addition, Japan Exchange Group itself has corporate governance issues. Although corporate governance in other areas of Japan is gradually becoming more diverse, only 3 of its 15 directors are women. Oki Matsumoto, former TSE director, said that the lack of investor representation on the board is also a problem. These challenges seem appropriate for this busy executive, who has only taken one sick day in the past 26 years and seems excited about the prospects for more market diplomacy.

In his investment in Japanese stocks, Buffett mainly holds shares in Japanese trading companies. According to Zhang Shengyuan, a director of China Trust Fund Investment, Berkshire Hathaway, Buffett's company, was bullish on the development of Japanese trading companies in 2020, buying 5% of the shares of the five largest Japanese trading companies. In June 2023, it further increased its holdings in the five largest Japanese trading companies to 8.5%, and in February 2024 held 9% of the shares of the five largest Japanese trading companies, indicating that it will continue to hold them for the long term. They expressed that there is still considerable bullishness in trading company investments.

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