Japan SMID Monitor Next Generation TOPIX inclusion exclusion end game

Portfolio Strategy Research 10 August 2026 | 7:18PM JST

Japan SMID Monitor: Next Generation TOPIX inclusion/exclusion end-game

In this month’s edition of the Japan SMID Monitor, we re-visit the implications of Bruce Kirk, CFA | the Next Generation TOPIX selection criteria, which will come into effect from 30 Goldman Sachs Japan Co., Ltd.

October 2026. Based on the inclusion criteria specified by the TSE (LINK), we now Julius Chan | estimate that the new selection criteria applied at the end of this month will Goldman Sachs Japan Co., Ltd.

potentially create 35 new inclusions and 681 exclusions from TOPIX. This will result in the index decreasing from 1,637 names to 991, although the weighting reductions will take place gradually over a two-year period. The main impact will be felt in the Japan SMID and small-cap universes. In companies currently close to the removal criteria, there has been a noticeable pick up in buyback announcement activity, with 27% of these companies announcing buybacks since the start of July (Exhibit 5).

n Recent increase in the market cap of AI and Semi-related stocks has increased the number of SMIDs impacted: The mechanism which the TSE is using to decide the stocks that will be included or excluded is based on cumulative free float market cap. Only top 97% of existing companies based on cumulative free float market cap will be maintained as index components, and the recent market cap increase in AI and Semi stocks has increased the number of companies that will be included in the bottom 3% cut-off. n Screenings highlight the more liquid inclusion and exclusion names: In Exhibit 7 and Exhibit 8 we highlight 29 potential inclusion names that trade with a 6M adtv over US$3mn, and 31 of the potential exclusion names that trade with a 6M adtv over US$2mn. n AI and Semi de-risking in July drove short-cover rally in AI-losers and Defensives: The best-performing sub-sector and thematic indices over the last month in our Japan SMID universe included AI-losers and Defensives like Software & Services (+17% mom) and Consumer Durable & Apparel (+13% mom). The worst-performing indices were Semis (-19% mom) and FA (-14% mom). We believe that the aggressive AI-related de-risking in July led to covering of risk-off Defensives.

n Individuals net bought TSE Growth and TSE Standard, whilst foreigners net sold both: As can be seen in Exhibit 1 and Exhibit 2 below, for the month of July, individuals net bought ¥44.4bn and ¥35.3bn of Standard cash equities and Growth cash, whilst foreigners net sold -¥31.6bn and -¥45.1bn, respectively.

Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to

Goldman Sachs Japan SMID Monitor

Exhibit 1: TSE Standard net buying 2-year chart as of Jul 31 2026, JPY bn

JPY bn Foreigners Individuals + Investment Trusts Business Corporations Trust Banks

-300 8/24 11/24 2/25 5/25 8/25 11/25 2/26 5/26

Source: Bloomberg, Tokyo Stock Exchange

Exhibit 2: TSE Growth net buying 2-year chart as of Jul 31 2026, JPY bn

JPY bn Foreigners Individuals + Investment Trusts Business Corporations Trust Banks

-600 8/24 11/24 2/25 5/25 8/25 11/25 2/26 5/26

Source: Bloomberg, Tokyo Stock Exchange