The author of this article argues that Japan”s return as a major investment destination is a structural shift. Along with many others of course, the country is not immune to forces such as new US tariffs. What underlying changes and qualities will count?
The following article about Japan comes from Ocorian, which provides
services to financial institutions, asset managers, corporates
and HNW individuals. The writer, Robin Harris, regional head of
APAC, Hong Kong, at the firm, addresses the investment case for
Japan. This is not a new line, of course – we have published
several articles about the case for holding exposures to this
economy. (See
here,
here and
here.) Clearly, following the US tariffs levied in early
April, Japan is affected, along with many other countries. But
what other considerations apply?
The news service is pleased to share these perspectives; the
usual disclaimers apply to views of outside contributors, and we
welcome debate and commentary. To jump into the conversation,
email tom.burroughes@wealthbriefing.com
and amanda.cheesley@clearviewpublishing.com
Japan, long considered a paradox in the investment world, has
seen a dramatic resurgence in its appeal over the past year after
decades of stagnation, deflation, and demographic challenges.
Once the economic darling of the 1980s and early ’90s, the
country spent years in limbo, but sweeping corporate reforms and
a resurgent economy have reignited global investor
interest.
Asian and overseas investors are once again pouring capital into
the world’s third-largest economy, drawn by confidence in its
growth potential and a lingering fondness for the Land of the
Rising Sun.
Japan’s corporate overhaul
One of the key drivers of the country’s renewed appeal is its
continuing corporate governance rebirth. Japanese firms were long
criticised for being inefficient, insular, and averse to putting
shareholder value first. But government and Tokyo Stock
Exchange-led reforms in recent years have done much to correct
those problems.
One of the more significant initiatives has been a call to
companies by the Tokyo Stock Exchange to improve
profitability margins. Firms have been urged to optimise capital
deployment, increase transparency, and return more to
shareholders. These actions have translated into higher share
repurchases, higher dividend payouts, and more engagement with
foreign investors – all significant signs of a matured
and investor-friendly market.
The election of Shigeru Ishiba as Prime Minister in October 2024
has also helped to change perceptions, he placed economic
recovery at the core of his policy agenda (1). By vowing to boost
the minimum wage, and enhance digitalisation and innovation in
chosen sectors, his government is paving the way for a more
dynamic and competitive economy.
A new-born opportunity for investors
Japan’s economy, which for so long had become strained under weak
growth and low inflation, is now showing distinct signs of life.
The pandemic recovery has been propelled by increasing consumer
spending, the re-emergence of tourism, and strong corporate
earnings. Inflation, which for years had stubbornly remained
below target levels, has returned in a controlled and manageable
manner, heralding the demise of deflationary pressures.
The Bank of Japan has also been a primary driver of the
investment landscape. While Japan remains one of the last
developed nations to maintain ultra-low interest rates,
there are indications that the BOJ will shift the direction of
monetary policy. Any adjustment in interest rates would lead
to investors becoming more optimistic, leading to additional
capital inflows into Japanese fixed income, equities and real
estate.
Moreover, Japan’s economic prowess is underpinned by its strong
manufacturing and technology sectors. Green energy initiatives,
robotics, and semiconductor production are attracting significant
foreign direct investment (2), and Japan is a central player in
the rebalancing of global supply chains. As geopolitical risk
pushes nations to diversify their industrial base, Japan’s
reputation for quality and innovation makes it a compelling
investment location.
Global investors rekindling their love for
Japan
Many foreign investors who appreciate Japan’s economic past are
returning en masse, as the country’s resurgence continues. In
2023, namely the month of May, Japan saw record-high inflows into
its stock market as the Nikkei gained 28 per cent, which only
jumped higher in 2024 with a 17 per cent increase (3) , with
institutional investors increasing their positions in big
companies. One of whom is Warren Buffett, who has increased
stakes in several Japanese companies.
Buffett’s increased investment in Japan’s five large trading
companies: Mitsubishi Corp, Mitsui & Co, Sumitomo Corp, Itochu
Corp, and Marubeni Corp added further confidence to the renewed
faith in the country’s economic trajectory.
Additionally, private equity firms and asset managers are homing
in on opportunities in Japan’s undervalued corporate sector. Many
Japanese companies have huge cash reserves and undervalued
assets, presenting appealing prospects for restructuring and
value creation.
Ocorian’s 2024 Family Office Regional Report for Asia
identified that investors are pivoting towards investing in Japan
equities, driven by second generation family members, who are
playing a more active role in shaping the direction of family
offices.
Japan’s investment renaissance is only just
beginning
Japan’s return as a major investment destination is a structural
shift fuelled by corporate renewal and economic revamping. It is
an age of rediscovery for investors, an opportunity to take
advantage of a market that is undergoing change but remaining
strong in its essential qualities of stability, creativity, and
stamina.
With robust corporate governance, a transforming economic
landscape, and high-pressure global investor interest, Japan is
once again proving that its best days could still lie ahead. As
capital surges into the country at record levels, investors who
act now might be at the forefront of an historic economic
renaissance.
Footnotes
1,
https://japan.kantei.go.jp/ongoingtopics/policies_kishida/newcapitalism.html
2,
https://tradecouncil.org/wp-content/uploads/2025/01/Investing-in-Japan.pdf
3,
https://edition.cnn.com/2024/02/22/business/japan-nikkei-225-record-high-intl-hnk/index.html
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