Japan to axe hundreds of stocks from Topix index

By the Editorial Team · Thursday, October 8, 2026

Japan’s stock exchange is planning to remove nearly 700 stocks from the Topix index as part of a major overhaul aimed at refining the benchmark to include only companies meeting stricter performance, liquidity, and market capitalization criteria. This restructuring, to be fully implemented by 2028, is expected to enhance the index’s efficiency and encourage slower-growing firms to improve, benefiting passive investors and potentially boosting corporate value in Japan’s equity market.

Japan’s stock exchange has announced a significant overhaul of the Topix index, signaling the potential removal of nearly 700 stocks from the benchmark. This move aims to refine the index, which is closely tracked by passive investment funds with nearly $1 trillion in assets.

The reform is part of a broader initiative led by Japan Exchange Group (JPX) chairman Hiromi Yamaji, who has advocated for enhancing corporate valuations by improving shareholder returns and engagement. The Topix, which currently includes over 1,600 companies, is considered a more comprehensive market gauge than the Nikkei 225 due to its market value weighting rather than price weighting.

The recent review by JPX found that 683 companies do not meet the new inclusion criteria, which emphasize relative performance, liquidity, and a free-float market capitalization ranking within the top 97 percent of listed companies. Additionally, 35 new companies are set to be added under the new rules. The changes, which will phase in gradually with full implementation by July 2028, are designed to stimulate competition by encouraging slower-growing firms to improve or face exclusion.

The rebalancing is notable for its scale: it follows a previous index tightening in early 2025 that reduced the number of constituent stocks from around 2,200 to 1,700. After these latest adjustments, JPX Market Innovation & Research anticipates the index will ultimately comprise at least 986 companies, down from 1,636 as of August.

Topix’s largest components include major global firms such as Mitsubishi UFJ Financial Group, Toyota, and SoftBank Group, all of which have substantial market capitalizations. At the other end of the spectrum are smaller firms like Prored Partners, a management consultancy with a market value of about ¥3.6 billion ($22.7 million), and Phil Company, engaged in real estate and storage services.

Market analysts suggest the restructuring will simplify index tracking for passive investors, while potentially generating long-term benefits for Japan’s equity market by fostering broader corporate value creation. UBS equity analyst Chisa Kobayashi noted that the reforms could positively impact Japanese equities by encouraging companies to enhance financial performance and shareholder relations.

While some investors have expressed concern over the removal of many smaller firms, proponents argue the streamlined index will make for a more efficient and dynamic market benchmark, better reflecting current market conditions and rewarding growth-oriented companies. The final composition of the Topix will be reassessed in October 2027, allowing for adjustments ahead of the full removal deadline.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.