The rebirth of the Nikkei: Why investors are turning their eyes to Japan

THE Japanese stock market has made a strong comeback, and is once again on investors’ radar after years of being overlooked due to a weak economy and a deflationary backdrop. Japan’s benchmark index, the Nikkei, has risen 28 per cent over the past twelve months. The biggest winners? Tech, semiconductors and financials.

Although valuations have improved in recent months and are no longer at depressed levels, there is still room for further earnings growth and improvements in Japanese companies’ fundamentals – factors that justify higher multiples.

The renewed strength in the Japanese market reflects the success of several measures introduced to improve efficiency and governance among listed companies. Historically, these firms have held large cash positions and maintained cross-shareholdings, which has weighed on their profitability.