Japan’s stock market has undergone a remarkable transformation. After decades of relatively modest returns and limited international attention, Japanese equities have delivered substantial gains, while listed companies are increasingly focused on profitability, capital efficiency, dividends and share buybacks.
The numbers illustrate the scale of the rally. By late October 2026, the broad TOPIX index had gained approximately 22% year-to-date, while the Nikkei 225 was up around 35%. At the same time, semiconductor companies have become some of Japan’s most valuable businesses, challenging traditional giants such as Toyota.
But the changes extend far beyond rising share prices. Corporate governance reforms, tax incentives for Japanese savers and growing participation by foreign investors are reshaping the market.
For American and European investors, Japan also has several unusual characteristics. Shares are generally traded in blocks of 100, daily price increases and declines are restricted by fixed limits, and stock splits have become remarkably common.
This is the third article in DividendJapan’s educational series about investing in Japan, following our earlier coverage of Japan’s standout stocks in 2026 and Japan’s weak yen, aging population and future economic growth.
Key points
Corporate reform: Abenomics initiated major changes, while the Tokyo Stock Exchange now encourages companies to improve returns on capital and communicate their capital-allocation strategies.
Dividends and buybacks: Japanese businesses are increasingly returning capital to shareholders through higher dividends and share repurchases.
Domestic investment: Japan’s expanded NISA program allows eligible residents to invest up to ¥3.6 million annually within a tax-free framework.
Market diversity: Nearly 3,900 companies are listed across the Tokyo Stock Exchange’s market segments, including smaller businesses active in AI, robotics, semiconductors, drones and software.
Different trading rules: Foreign investors must account for 100-share trading units, exchange-rate movements, daily price limits, dividend taxes and Japan’s distinctive trading hours.
How Abenomics started Japan’s stock market transformation
The origins of Japan’s changing stock market can be traced back to former Prime Minister Shinzo Abe.
When Abe returned to office in December 2012, Japan had experienced decades of economic stagnation, deflationary pressure and limited wage growth.
His economic program, commonly known as Abenomics, introduced three broad policy initiatives: monetary easing, fiscal stimulus and structural reforms.
One particularly important element was an effort to change how Japanese companies were managed.
For years, many businesses had maintained large cash reserves, extensive cross-shareholdings and relatively conservative policies toward dividends and share repurchases.
Cross-shareholdings are a distinctive feature of Japanese corporate history. Companies often owned shares in customers, suppliers, banks and other business partners to maintain commercial relationships.
Although these arrangements could contribute to business stability, they also tied up capital and sometimes reduced pressure on management to improve shareholder returns.
The reforms initiated during the Abe era encouraged greater transparency, independent directors and more attention to shareholders.
Japan introduced its Corporate Governance Code in 2015 and subsequently revised it several times.
The latest revision, published by the Japan Exchange Group in July 2026, continues this process.
Abenomics did not immediately transform Japanese corporate behavior. Rather, it established a framework that has been developed further over the following decade.
The Tokyo Stock Exchange wants companies to use their capital more efficiently
One of the most important developments occurred in March 2023.
The Tokyo Stock Exchange asked all companies listed on its Prime and Standard markets to implement management policies that explicitly consider the cost of capital and stock price.
The objective is to encourage companies to assess whether their capital generates adequate returns and to explain how they intend to improve corporate value.
Several financial concepts have become particularly relevant.
Return on equity, or ROE, measures profits relative to shareholders’ equity. Return on invested capital, or ROIC, examines operating profitability relative to the capital invested in the business.