Japan’s IPO Boom Is Losing Steam as AI, War and Higher Rates Shake Tech Startups — But the Next Wave Could Be Very Different

Japan’s once-busy IPO market is showing signs of a significant slowdown, with fewer companies choosing to go public as market volatility, higher interest rates and growing fears over artificial intelligence reshape investor appetite.

The Tokyo Stock Exchange recorded just 17 new listings across its Prime, Growth and Standard markets during the first half of 2026 — roughly 30% fewer than in the same period a year earlier, according to TSE data reported by Jiji Press and The Japan Times.

The slowdown has been particularly pronounced among technology companies, especially software and software-as-a-service businesses that previously formed an important part of Japan’s startup IPO pipeline.

AI is changing the IPO equation

One of the biggest problems facing prospective technology listings is a fundamental question from investors: how much is traditional software worth in an economy increasingly shaped by generative AI?

The rapid development of AI coding tools and AI-powered business applications has intensified concerns that some conventional software products could become easier to replace or face pressure on pricing and demand.

That uncertainty has made investors more selective — and has encouraged some SaaS companies to postpone plans to enter the public market.

Soichiro Saito of SMBC Nikko Securities told The Japan Times that consultations regarding IPOs have not disappeared, but SaaS-related companies have increasingly been delaying their listings.

The shift comes as the global software sector itself is undergoing a complicated reassessment. Reuters recently reported that investor sentiment toward software has begun improving after an earlier wave of concern that AI would destroy traditional software business models.

That means the Japanese IPO slowdown may not necessarily signal the end of investor interest in technology. Instead, it could indicate that investors are becoming much more demanding about which technology companies deserve public-market valuations.

Japan’s IPO market has been cooling since its 2021 peak

Japan’s IPO activity reached a recent high of 123 listings in 2021, when exceptionally loose monetary conditions created a favorable environment for companies seeking capital.

Since then, annual IPO activity has remained comparatively subdued.

The latest decline is particularly important because Japan has been trying to strengthen its startup ecosystem and make the Tokyo Stock Exchange more attractive to growth companies.

The TSE Growth Market — designed largely for startups and emerging businesses — has faced especially difficult conditions. Its benchmark Growth Market 250 Index has trended lower since 2022, according to the Japan Times report.

That weaker market performance can make an IPO less attractive for founders and venture investors because companies risk receiving lower valuations than they might have expected during stronger market conditions.

A stricter TSE rule is also changing the landscape

There is another structural factor putting pressure on companies considering the Growth Market.

The Tokyo Stock Exchange plans to tighten its continued-listing requirements for Growth Market companies.

Under the current rules, a company must meet a ¥4 billion market-capitalization requirement after 10 years of listing. The rule is scheduled to change effective March 1, 2030, when the threshold will become ¥10 billion after five years of listing.

That distinction matters.

The tougher requirement is not an immediate 2026 rule, but companies planning an IPO are already having to consider what the public-market environment could look like several years after their listing.

The TSE says the change is intended to encourage companies listed on the Growth Market to achieve sustainable growth rather than simply remain listed indefinitely.

The pressure is already influencing market behavior, with some companies moving toward the Standard Market rather than the Growth Market.

War and interest rates add another layer of uncertainty

The IPO slowdown is also occurring against a much more difficult global financial backdrop.

Market volatility linked to the Iran war, combined with higher interest rates, has made investors more cautious about companies whose valuations depend heavily on future growth.

Higher rates tend to make future corporate earnings less valuable when discounted back to the present, which can disproportionately affect high-growth companies that are not yet generating large profits.

At the same time, geopolitical uncertainty can make investors more reluctant to commit capital to speculative new listings.

Yet Japan’s broader corporate sector is not necessarily showing the same weakness.

Reuters reported this week that Japanese corporate capital spending rose 1.6% year over year in the second quarter of 2026, accelerating sharply from the previous quarter. Corporate recurring profits also reached a record ¥44.7 trillion, helped by factors including the weaker yen and lower U.S. tariffs.

That creates an important contrast: Japan’s established companies may still be investing and generating strong profits even as younger companies struggle to find the right moment to enter the stock market.

The IPO pipeline is not dead

Despite the slowdown, Japan’s IPO market is far from frozen.

Japan Exchange Group's official new-listing data shows that companies have continued to enter the Growth and Standard markets during 2026. Among the notable listings was autonomous-driving technology developer TIER IV, which listed on the Growth Market in July.

TokyoIPO's current 2026 schedule also shows additional companies preparing to list in September, including businesses in technology, services and other sectors.

The pattern suggests that investors have not abandoned IPOs altogether. Instead, the market appears to be becoming more selective about the type of growth story it is willing to finance.

Deep tech could become Japan’s next IPO bright spot

That could benefit companies operating in areas that have strong strategic or government support.

The Japan Times identified autonomous driving, space technology and semiconductors as areas where investors may retain strong interest.

These businesses are different from conventional SaaS companies because their investment cases can be tied to physical infrastructure, advanced engineering, national industrial policy and long-term technological development.

Japan is also increasing investment in strategic sectors such as AI, semiconductors, advanced manufacturing and energy infrastructure. Reuters reported that government investment incentives and strong demand for AI-related technology are encouraging Japanese companies to increase capital spending.

That could create a new divide in Japan’s IPO market: traditional software businesses may face tougher scrutiny, while companies positioned around AI infrastructure, chips, robotics, autonomous vehicles, space and other forms of deep technology could attract greater attention.

Tokyo still wants more international IPOs

The slowdown also comes as the Tokyo Stock Exchange is trying to expand its appeal beyond Japanese startups.

Earlier this year, the TSE launched an initiative aimed at attracting startups from other Asian markets, working with banks, auditors and venture capital firms to help companies prepare for fundraising and potential Tokyo listings.

The exchange selected 20 startups for the initiative, with companies from Singapore and Taiwan among those involved. The broader goal is to make Tokyo a more attractive alternative for Asian companies seeking access to deep pools of capital.

That strategy could become even more important if the domestic IPO pipeline remains weak.

What happens next could determine the future of Japan’s startup market

Japan’s IPO slowdown is therefore more complicated than simply a decline in the number of companies going public.

It reflects a broader reset in how investors value growth.

The easy-money environment that helped fuel the 2021 IPO peak is gone. Interest rates are higher, geopolitical risks are elevated and artificial intelligence is forcing investors to reconsider entire technology business models.

But the appetite for innovation has not disappeared.

Instead, capital may increasingly flow toward companies that can demonstrate durable competitive advantages, strong technology, strategic importance and a credible path to long-term growth.

For Japan, that could ultimately produce a smaller but more selective IPO market — one where fewer companies make it to the exchange, but the companies that do may be expected to have much stronger foundations.

And that is where the story gets interesting: if Japan’s traditional software IPO pipeline continues to shrink, the next major wave of Tokyo listings could come from industries that investors once considered far more specialized — and they may be the companies that define Japan’s next generation of public-market growth.

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