The Tokyo Stock Exchange (TSE, Financial) has extended its stock trading hours to 5.5 hours, pushing the closing time by 30 minutes to 3:30 PM. This marks the first extension since 1954, aimed at enhancing market competitiveness and transparency. As part of this change, TSE has introduced a "closing auction" system, allowing orders only for price determination in the last five minutes of trading. A new trading system will also go live in November.
The decision for this extension follows a major system outage in October 2020, which halted trading for an entire day. In response, TSE decided to proceed with the extension alongside the system upgrade to cater to evolving market demands and the diverse needs of investors. In May 2021, TSE set up a task force to enhance cash equity market functions, leading to the release of an action plan in October 2021 with the decision to extend trading hours.
Despite the extended hours, TSE's trading duration remains shorter compared to major global exchanges like the London Stock Exchange, Frankfurt Stock Exchange, and Paris Bourse, each with 8.5 hours. Singapore Exchange operates for 8 hours, while others like the New York Stock Exchange, Nasdaq, and others offer 7 to 6.5 hours. Recently, NYSE announced plans to extend trading on its all-electronic NYSE Arca to 22 hours per day, pending regulatory approval.
Data suggests that extended trading hours boost trading volumes. In 2011, Singapore, Hong Kong, and Japan extended their trading hours, resulting in significant volume increases. For instance, the Hong Kong Exchange saw a 7% increase in trading volume after extending hours in 2011 and 2012.
However, some market experts caution that the TSE's 30-minute extension might favor algorithmic hedge funds over certain investors, as these funds might profit from price-sensitive news during the extended period. A TSE survey indicated that 40% of 800 firms planning earnings announcements would do so during the new trading hours, up from 20% previously.
Currently, the market response to TSE’s extension is positive. The Nikkei 225 has risen about 1%, bucking the general downward trend in Asia-Pacific markets. So far this year, the index has gained 13.71%, hitting a record high in mid-July. Out of its components, 160 have seen increases this year.
Political turbulence in Japan hasn't hindered the Nikkei 225's rise. The Liberal Democratic Party's electoral setback didn't affect the index, and a stagnant yen, due to the Bank of Japan's stable policy, supports Japanese stocks somewhat. Market analysts remain optimistic about Japanese stocks, citing domestic structural reforms and improved corporate governance as key factors. Homin Lee, a senior macro strategist at Lombard Odier, believes the Bank of Japan’s cautious approach to policy normalization will positively impact the stock market, with economic fundamentals continuing to offer support.
