Mr Nishimuro’s comments came after the unprecedented two-month business suspension of ChuoAoyama, the Japanese partner firm of PricewaterhouseCoopers, for allowing Kanebo, the cosmetics group, to commit massive accountancy fraud.

In an exclusive interview with The Times, Mr Nishimuro said that the fierce penalty was fully justified, describing the suspension as “a proper judgment and a great warning sign for the future”.

As well as causing an exodus of clients from ChuoAoyama, the punishment has helped to fuel extreme volatility on the TSE. Mr Nishimuro said that the exchange authorities would not step in to calm any turmoil caused by the rising blood- lust of regulators in Japan’s Financial Services Agency (FSA).

Mr Nishimuro, 70, believes that the extraordinary lurches that Japanese stocks have taken in recent weeks are part of a natural progression towards fairer and more open markets. The high-profile arrests of Takafumi Horie, of Livedoor, and of Yoshiaki Murakami, the flamboyant investor, were part of that normalisation, the stock exchange president said.

“I do have a tear to shed for those who are going to be penalised, but, for the sake of the future, for the country, it is a necessary evil,” he said, referring to his prediction of further regulatory crackdowns. “This is natural evolution.”

Mr Nishimuro said that investors should expect “more revelations of problems” in corporate Japan and more punishments of auditors involved. “I think that the FSA will become more aggressive, and stronger in dealing with the accountancy system — as it should be,” he said. “It is true that the process could be disruptive, but if companies are corrupt, the only thing to do is take action.”

Mr Nishimuro said that the TSE’s position now was much like that of the New York Stock Exchange after the Enron scandal brought down Arthur Andersen. He strongly rejects the idea that institutions such as the TSE naturally prefer stability and said: “Fairness counts first . . . we are not scared of disruption.”

The TSE president’s forecast will be especially chilling to other Big Four accountancy firms, such as Ernst & Young and KPMG, with subsidiaries or partner firms in Japan. Although such firms are likely to be initial beneficiaries of ChuoAoyama’s suspension, the newly aggressive attitude of the FSA now makes it more likely that auditors will share the pain with their clients if corporate scandals occur.

The speed of ChuoAoyama’s fall from grace was highlighted yesterday by the defection of Toyota, its largest client. The motor group joins 70 other companies that have taken their business to other audit firms after the FSA’s decision. Before Toyota’s move, it was estimated that the exodus of clients would cost ChuoAoyama £100 million in lost revenue.

To make matters worse, Toyota has opted to have its auditing done by Aarata, a subsidiary of PricewaterhouseCoopers set up in Japan just a few weeks ago as an alternative to ChuoAoyama.

NISHIMURO VIEW

On the TSE
“The trading system we have established is more complicated than others in the world. Those complications mean more abundant information for participants — good for issuers of stock. In other words, we believe that though we are antiquated and out of date we are very much user-friendly”

On the Mizuho fat-finger incident
“We felt embarrassment and also reflection about what we have not done and what we should do. Now we are on the right track to solve all those problems”

On changing Japan
“The changes happening now will outlast [Junichiro] Koizumi [the Prime Minister]. We have to continue to be fair. That is how we will be able to call our economy an open economy around the world”

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