The system malfunction that halted trading of all listed shares on the Tokyo Stock Exchange on Thursday shook confidence not only in the TSE, but in Japan's entire financial marketplace as well.
Trading by foreign investors accounts for approximately 70% of the volume on the TSE's First Section.
When taking into account the profit levels and asset values of Japanese firms, the equities are believed to be undervalued when compared with U.S. and European stocks.
Many foreign pension and investment funds have been pouring money into Japanese stocks as the global monetary easing has flooded the market with money.
The TSE's system glitch was widely reported on overseas, with the New York Times criticizing it in its electronic edition: "The breakdown was the worst ever for one of the globe's biggest platforms for buying and trading stocks."
The system failure also threw water on Prime Minister Yoshihide Suga's initiative to make Japan into Asia's financial hub.
With financial institutions in Hong Kong mulling a pullout from the region due to the recent turmoil over crackdowns on democracy, Suga has said he wants to attract banks and financial experts to Japan in a a bid to encourage investment in the country. Yet this could be set back if investors' confidence is shaken in the TSE, which plays a central role in the financial market.
More than 2,000 companies are listed on the TSE's First Section. When listed shares on the TSE's Second Section and Mothers are included, the total number of listed firms was 3,724 as of Thursday.
On Wednesday, turnover on the First Section alone was about 2.9 trillion yen.
If trading is halted, investors may not be able to make the profits they expected from trading stocks, and in some cases they may suffer losses. Companies would also be unable to raise money from the stock market, and the asset managers of financial institutions and other institutional investors would also be unable to manage their assets.
"Financial transactions such as stock trading are likened to the blood of economic activity. Even if you can't trade stocks for just one day, the impact on the market economy is incalculable," an analyst said.
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