This time it’s different for Japanese stocks: Nikkei at highs since 80s

See the Nikkei 225 Index reaches new high34 years later, it is a milestone in the markets. The second largest stock exchange in the world is finally getting back its essence. despues de quadruple in the last decade and increase 16% so far in 2024, The burning question is whether this is another bubble moment or really part of a proper renaissance. Forgive me for making it personal, but I’m a believer! Having started out as a graduate trader in London at a Japanese bank, I was launched right at the end of the property-driven equity boom of the late 1980s. Fortunately, I skipped most of the relentless denouement of the Japanese miracle for the next 15 years, attributing it to a surreal experience at my first job. Even as recently as 2012, after a decade working at other Japanese banks, including time in Tokyo, the economy there reverted toward deflation, with the stock market once again doomed to irrelevance. But once you become familiar with Japan, that stays with you for life, so faith has returned. There is a different conviction behind this revaluation of Japanese assets. A rich vein of systemic change is waiting to be mined for opportunities, meaning it can no longer be overlooked in favor of China. This time, Japan Inc. really wants to dig out of its hole and take advantage of the weakened position of its dominant Asian rival. The famous three arrows of reform of the former prime minister Shinzo Abe They are reaching their goals late. Cultural change is occurring with more consistent wage increases, less resistance to mergers and acquisitions, and a return to stable inflation. Of course, there are similarities with the recent excellent performance of the US stock market. The Seven Samurai of Japan, selected by Goldman Sachs Group Inc., are undoubtedly boosted by the effect of Nvidia Corp.. However, the Nikkei 225’s 50% rise in the last year is largely indigenous. It comes from a notably different valuation, even at 16 times forward price-to-earnings, it’s still a bargain compared to more than 20 times the S&P 500 index, and in a different galaxy than the peak it had reached (70 times) in 1989. American and European versions consistently drove the majority of the volume. Warren Buffett may have fired the final starting gun in August 2020 investing heavily in Japan’s unique companies, but that was also an undervalued commodity play. There is a lot of potential, not only in stocks, but also in residential and commercial real estate. If ever The internal situation of the United States falters, Japan is the obvious alternative For fund managers looking for growth, combine it with a cheap currency. The value trapped in the country’s broadest stock indices had become an accepted staple, much of it presumed lost in an impenetrable web of cross-holdings and massively undervalued corporate holdings. The Nikkei 225 is really just the tip of the iceberg, as it is dominated by chip-related stocks like Tokyo Electron Ltd., Advantest Corp. and SoftBank Group Corp.all of which have increased more than 40% so far this year.The index Topixmuch larger, It has 2150 members and is much more representative of the real Japan, with all its imperfections. It is still 8.5% below its all-time high. However, it is not far behind, gaining 12.5% ​​this year, led mainly by large banks and automakers. Yes, Toyota Motor Corp. is now a growth stock. The once omnipotent Ministry of Economy, Trade and Industry is also preparing with large domestic aircraft to catch up in the microchip race to benefit a broad corporate audience, not just national champions.This suggests depth and longevity, as the Topix index’s core valuation is less than one and a half times book value, barely a third of the S&P 500. The CEO of Japan Exchange Group Inc., Hiromi Yamaji, He deserves praise for driving important governance and liquidity reforms. It’s a long and bumpy road, but internal resistance is waning, as illustrated last year by the previously unthinkable privatization of the Japanese industrial icon. Toshiba Corp.United Nations big catalyst could be when the Bank of Japan increase your negative interest rate of -0.1%. It is the only central bank that still has negative rates. There is a huge structural interest rate trade-off to consider, as many financial institutions borrow in yen to buy higher-yielding assets elsewhere. Japan has the highest debt-to-gross domestic product ratio of developed nations, and the largest debt burden of almost $10 trillion. For now, 10-year Japanese government bond yields are well below the BOJ’s 1% yield cap. Where the central bank signals, the captive domestic bond market will follow. But the BOJ needs to move slowly and predictably so as not to trigger financial tsunamis. super weak yen stuck around 150 against the dollar, it is difficult to compete with the 5.5% rates in the United States; suffers from high hydrocarbon import costs. Japan is a country poor in resources, apart from its abundant water. However, he weathered the pandemic incredibly well, helped by strong compliance. It is the only country that really wants to see prices rise to break its deflationary culture. The BOJ’s relatively new governor, Kazuo Ueda, has played a very clever game waiting for the first rate cut from the Federal Reserve. the meInflation has returned above its previously considered fantastic target of 2%, but it is not yet completely sustainable. Japan’s economy fell into recession in the second half of last year, nominally causing it to lose its coveted third place in the world to Germany. Actually this is just a statistical anomaly of a weak yen versus a strong dollar which will be reversed quickly as Japan’s economic future is significantly brighter. If the BOJ can maintain the right balance, it will adjust rates into positive territory when it is convenient for Japan. It’s a decent setup for a sustained recovery.