The Tokyo Stock Exchange (TSE) will widen the universe of stocks that are included in Japan’s benchmark Topix index, while reducing the number of constituents, as it seeks to boost the appeal as an investable gauge.

Companies listed in the Standard and start-up Growth markets will be considered for inclusion, with the first review taking place in October 2026, TSE operator Japan Exchange Group Inc (JPX) said in a statement on Wednesday. Currently, only those in the Prime market of large caps are included.

The number of companies in the gauge will be reduced to about 1,200 in the next review in 2028, JPX chief executive officer Hiromi Yamaji said in a briefing in Tokyo on the same day. The Topix index currently includes more than 2,000 stocks, and at least ¥83 trillion (US$526 billion or RM2.48 trillion) of assets were linked to the gauge as of last year.

A greater emphasis will be placed on liquidity, and phased weighting reductions of companies with tradable share market cap of less than ¥10 billion is in progress, according to the statement.

“While the number of constituents may still seem like a lot, actively replacing them will certainly boost confidence in the companies that remain, and in the index,” said Masayuki Doshida, a senior market analyst at Rakuten Economic Research Institute. “The impact seems positive.”

JPX restructured its market and introduced the current sections - Prime, Standard and Growth - in April 2022 to boost the stocks’ appeal and understandability to foreign investors.

Companies that were in the First Section, now the Prime market, at the time of restructuring remained in the current Topix even if they chose to be listed in the Standard or Growth markets.

  - Bloomberg