Japan's Shame Index Tries to Spur Profits

When the Japanese government came up with the idea of creating a stock index to incite better corporate performance and boost the economy, the job of devising the measure fell to Daisuke Tanaka, a lifelong employee of Japan Exchange Group. Launched in January, the JPX-Nikkei Index 400 is changing company behavior even as detractors say it will cause investors to buy overpriced stocks. “I feel glad we’ve made this measure,” says Tanaka. “I’ve no regrets about how we set it up.”

Unlike conventional stock indexes, which choose companies based on their size or significance, the JPX-Nikkei 400 includes those that demonstrate a commitment to making money for shareholders, as measured by return on equity (ROE) and other factors. The idea behind the index was to shame companies that didn’t make the cut into changing their strategies. Last month, in the first reshuffling of the index, Sony, which posted losses in five of the last six years, was one of 31 companies dropped. Among their replacements were Mazda Motor, Daiwa Securities, and Seiko Epson.