On 14 October 2008, the Financial Services Agency of Japan (JFSA), to ensure market transparency and facilitate the monitoring of short selling in the Japanese markets, requested exchanges (such as the Tokyo Stock Exchange and the Osaka Stock Exchange) to enhance their disclosure of information about short selling, from only disclosing the aggregate of short sales on a monthly basis, to requiring disclosure of the aggregate and sector-by-sector volumes of short sales.

On 30 October 2008, the JFSA amended regulations to prohibit naked short selling, and on 7 November 2008, it amended other regulations to require holders of short positions to report their holdings (subject to a threshold requirement) to exchanges through securities firms.

In 1948, the Japanese government established a ban on selling securities at a price lower than their purchase price in relation to short sales along the same lines as those contained in the then US Securities Exchange Act of 1934. However, such restrictions were rarely enforced because Japanese stock prices were increasing.

In 2002, when some non-Japanese securities companies made proprietary short sales without disclosing them, the JFSA imposed a business improvement order. The JFSA found that those securities companies sold short positions through margin trading (which was then exempted) so the FSA amended the relevant regulations to narrow the exemptions to the general restriction and to prohibit short selling unless the sale price was higher than the purchase price (the "Uptick Rule").

Although the US Securities Exchange Commission abolished the Uptick Rule, the JFSA has not reconsidered the appropriateness of retaining it.

Because of the severity of the current financial crisis, the Japanese government, without requesting public comments in advance, introduced temporary restrictions on short selling. The JFSA added a blanket prohibition on naked short sales (sales of securities not held by the seller at the time of sale).

The JFSA also introduced an obligation to report, subject to certain exceptions, short sales of 0.25% or more of the outstanding issued share capital of the relevant company and an obligation on exchanges to publicly disclose such reports. However, unlike many other countries, creating a new short position or increasing a short position on financial institutions has not completely been prohibited, even temporarily.

The government has, therefore, consistently been strengthening the restrictions on short sales in response to the global financial crisis. At the beginning of March 2009, the chief of the JFSA stated that these new restrictions were aimed at preventing an intentional bear raid (that is, when traders attempt to force down the price of a security by various means, including short selling).

Unfortunately, in spite of these restrictions (which are stricter than those of other developed countries), the stock price average of the TSE remains at quite a low level and the amount of the reduction is in many cases higher than in markets in other countries.