Stock Market: Japanese Stocks Make a Comeback
While the performance of Japanese stocks was certainly bolstered by exchange rate movements (the yen fell 8% against the euro over the period), there are also several fundamental reasons behind this strong performance.
From a macroeconomic perspective, the country is finally emerging from 30 years of “zero inflation”—or even deflation. The CPI has reached 3.3% over the past 12 months. It is worth noting the emergence of wage inflation linked to the country’s low population growth: growing recruitment challenges are leading to wage increases.
At the same time, the country is benefiting from the “post-COVID” reopening of its economy, which occurred later than in Europe or the United States. Japan did not reopen its borders to foreign tourists until October 11, 2022, and reclassified COVID-19 as a low-risk infectious disease on April 29, 2023. The easing of public health restrictions is now leading to an increase in domestic consumption.
Finally, from a more technical perspective, the Tokyo Stock Exchange has been undertaking a major reform since last year aimed at making the Japanese market more attractive. The Tokyo Stock Exchange now requires companies trading below their book value to explain the reasons for this situation and/or take steps to remedy it. These new rules are prompting many companies to divest unprofitable businesses or repurchase shares to improve their ROE. These measures could continue to bear fruit in the coming years.
