The Japanese stock market is on a bull run, with the Nikkei 225 Index hitting its highest level since 1989. This surge comes after more than three decades of economic struggles, with the index up over 19% year to date and nearly 39% over the last 12 months. This outpaces the S & P 500’s gains, with foreign investors driving much of the growth.
The rally in Japan is fueled by a small group of large-cap stocks, including Tokyo Electron, SoftBank, Fast Retailing, and Advantest. These companies make up a significant portion of the Nikkei’s gains, with foreign investors now owning almost a third of the Japanese stock market.
Analysts are noting similarities between the Japanese and U.S. rallies, with both markets being driven by a concentration of large-cap stocks. Quality stocks have outperformed the broader market in Japan, with factors such as lower debt-to-equity ratios and high estimated return on equity playing a role.
However, concerns are rising about peak valuations in the Japanese tech sector and the sustainability of the market rally. The Bank of Japan’s decision to raise interest rates from negative levels is seen as a positive sign, indicating a shift towards inflation after years of deflation.
Investors looking to capitalize on the Japanese market can consider ETFs like the iShares MSCI Japan ETF (EWJ) and the iShares JPX-Nikkei 400 ETF (JPXN). With the potential for further growth in the Japanese market, analysts are optimistic about the future of Japanese equities.
