Say “hai” (yes) to Japanese stocks

The Nikkei 225—Japan’s version of the S&P 500—is near an all-time high. Yet we think Japan is still a good source of opportunities. Here’s why: 

Businesses are becoming more investor-friendly: Companies have been doing more to drive shareholder value, such as buying back nearly ¥17 trillion (~US$110 billion) worth of shares in 2024, a 75% increase over 2023.1 

The market is more accessible to foreign investors: Reforms and new takeover guidelines by the Tokyo Stock Exchange have made it easier for global investors to get involved with Japanese companies. As a result, private equity deals have surged, surpassing ¥3 trillion (~US$20 billion) in 2024 for the fourth year in a row.2 Carve-outs and take-privates have been particularly active—activity that can boost valuation multiples for listed equities broadly. 

The economy is shifting gears: Japan is finally showing signs of moving away from deflation (a period of falling prices). Wages were up 4.8% in 2024 versus the prior year, the biggest increase since 1997! And the Bank of Japan raised interest rates in January for the first time in 17 years, signaling confidence in a healthier inflationary environment. (Inflation was 3.3% in June.3) 

Japan equities are relatively cheap: The MSCI Japan trades at a forward price to earnings multiple of 17.2x and an EV/EBITDA4 of 7.0x. Compare that to the S&P 500’s 23.3x and 15.8x, respectively. 

In short, the company’s corporate landscape is improving, the economy is on the right track, and valuations are reasonable. It’s why we continue to have a positive view of Japanese equities. 

Maverick Lin contributed to this article. All data not specifically cited is from FactSet.