The move follows the TSE's biggest overhaul in a decade in April when it tightened criteria and reorganised its markets into three - "prime", "standard" and "growth" - to highlight profitable firms whose governance meets global standards.

More than 2,000 companies which were on the main board of the exchange - now the prime market - are in the Topix. They include firms that did not make the prime market at the reform and whose shares are now traded on the two other markets.

The TSE, operated by Japan Exchanges Group Inc, plans to gradually remove firms whose market capitalisation in tradable shares is less than 10 billion yen ($69 million) from the Topix index, which is tracked by more than 70 trillion yen worth of investment vehicles, including exchange-traded funds mainly held by the Bank of Japan.

"The impact of the reform on the index will be neutral," said Tomoichiro Kubota, senior market analyst at Matsui Securities. "Those who will be eliminated will be sold off, while those which remain will be bought."

The exchange will reduce the weighting of affected companies on the Topix gradually until January 2025, when those companies will be completely eliminated. Companies that fall short of the criteria can be reviewed next October.

($1 = 145.0200 yen)

(Reporting by Junko Fujita; Editing by Christopher Cushing)

By Junko Fujita