Japan’s economic story is one of significant interest and fluctuations. In the 1980s, it was a shining example of economic success as the second-largest economy in the world. However, in December 1989, Japan’s stock market peaked at 45% of the world’s stock market capitalization, marking the beginning of three decades of economic stagnation and deflation. Today, Japan’s market participation stands at just 6%, but there are signs of a resurgence in its economy.
Japan led gains in global stock markets in 2023 and continued this positive momentum into 2024. Several key factors have contributed to this resurgence, including a return to inflation after years of deflation. This has led to an increase in earnings per share for the MSCI Japan index by 8.3%. Additionally, global demand for manufactured products and improved pricing power for companies targeting the domestic market have played a significant role in driving this growth. The Japanese market offers diversification opportunities that enhance portfolio performance and correlation.
Government policies have been instrumental in driving this economic turnaround, with reforms in the NISA program encouraging more investment in stock assets. Restructuring previously inefficient companies has led to increased profits and better stock performance. While there are challenges such as an aging population and high government debt, Japan’s focus on areas like medical technology, factory automation, and transitioning to a low-carbon economy present opportunities for future growth and innovation. With measures in place to address these challenges, Japan’s long-term economic outlook is optimistic.
In conclusion, Japan’s economic journey has been one of great interest with significant fluctuations over the years. Despite facing challenges such as an aging population and high government debt, there are several key factors contributing to its resurgence today. These include a return to inflation after years of deflation, global demand for manufactured products, improved pricing power for companies targeting domestic markets
