After three decades of economic stagnation, Japan is making an impressive comeback. Part is due to changes in Japan’s economic policy and part has to do with investors and companies looking to do business anywhere but in China. For investors looking to profit from Japan’s economic comeback, here are some thoughts about profitable investment in Japan. But first of all, we take a new look at how Japan handled its three decades of relative stagnation.
Japan’s Economy and Coping With Unique Japanese Issues
The New York Times published an insightful article last year about what happened to Japan after its economic collapse at the end of the 1980s. It helps explain how a major world economy seemed unable to climb out of an economic hole of its own making. It also sheds some light on what to expect from China’s economy which has some of the same problems that Japan had but does not likely have the wherewithal to deal with issues as successfully.
At the end of the 1980s Japan’s stock market rivaled or even surpassed that of the US. The Japanese were buying US assets like Rockefeller Center, the Pebble Beach Golf course in California, and Colombia Pictures. Popular books like the Rising Sun by Michael Crighton portrayed the Japanese rise to dominance as sinister and a threat to the West. Coincidentally, Japan’s meteoric rise stopped and reversed. A mountain of hidden debt helped torpedo the Japanese economic miracle. But there is more to the story. It has to do with Japan’s low birth rate, aversion to immigrants, declining population, and fewer workers.
If you look at Japan’s GDP as it relates to the working population, it compares favorably to the USD since 1990. According to the St. Louis Federal Reserve, US and Japanese GDP per worker were equal in 1994 at the beginning of Japan’s apparent economic stagnation. By 2023 US GDP per worker had gone up 55% while that of Japan had gone up by 45% with the two sets of data running roughly parallel over the years. Currently, there are 69 million employed workers in Japan versus 167 million in the USA. While the US workforce has increased by nearly 40% since 1990 and especially in the last couple of years, Japan’s has remained relatively flat.
Looking at Japan from the perspective of a society that has a lower birth rate and does not want a lot of immigration you see a success story in how they have maintained a relatively healthy economy in the face of these challenges. And you see their stock market as represented by the Nikkei index up 33% from 30,000 to 40,000 over the last three years.
Japanese Business Success Stories and Potential Investments
Yahoo Finance published a list of what they consider to be the best Japanese stocks in 2024. As might be expected, Sony leads the list. The company trades on the NYSE where its shares are trading for seven times their 2012 price at $85. Sony is followed on their list by Mitsubishi and Sumitomo Financial groups, and Toyota which is trading at nearly four times its price of a dozen years ago on the NYSE at $251. Their list goes on to include Takeda Pharmaceutical, Honda, Nomura, Mizuho, Orix, and Heartcor Enterprises. All of these trade on US markets.
Why Is Japan’s Market Doing Better?
The Japanese stock boom is largely coming from foreign investment including the likes of Warren Buffett. Corporate debt in Japan is extremely low. Companies have been streamlining their management structure and thus saving money. A relatively weak yen makes their exports more competitive. And Japan is benefitting from an almost universal desire to move supply chains and investments out of China.
How Can You Invest in Japan?
The good thing about investing in major Japanese companies is that they generally trade on the New York Stock Exchange or Nasdaq. There is no need to learn Japanese, move to Japan, or become an expert in Japanese startups. For those who are not interested in picking individual Japanese stocks there are lots and lots of Japanese ETFs that trade on US markets.