The Japanese Market is Primed for Long-Term Growth
Japanese ETFs are looking more and more enticing as the market recovers to 1989 highs
The Japanese Market: A Simple History
I recently spent some time analyzing an essay from Kazuo Ueda titled, “Deleveraging and Monetary Policy: Japan Since the 1990s and the United States Since 2007.” The basis of the print is that Japan struggled following its market crash in the late 80’s early 90’s, whereas, the United States recovered relatively quickly. The US S&P 500 is sitting at levels nearly double that of its height in 2008, a change that took 15 years-ish to accomplish. The Japanese Nikkei 225 index has performed in exactly the same way since its high in 1989… NOT.
The high of the Nikkei 225 in 1989 was 38,957 - A value that would not be reached again until… well never. The Japanese stock market has never fully recovered to the highs it experienced in the late 80’s. The index today (12/13/2023) sits only at 33,000, a value nearly 5,000 points lower.
That being said I think that ETFs tracking the Japanese market will perform well over the next couple of years. I, with my limited research, have looked at BBJP, FLJP, and DFJ.
Japanese ETFs are a Good Investment for the Long-Term
First and foremost, Japan boasts a robust and well-developed economy. As the third-largest economy in the world, the country has a strong industrial base, featuring leading companies in automotive, electronics, and robotics. Corporations such as Toyota, Sony, and Honda have established themselves as global leaders, contributing significantly to Japan's economic prowess. Investing in Japanese stocks allows investors to tap into the success of these renowned companies and benefit from their global reach and influence.
Foreign Investment Opportunities
In recent years, the Japanese government has also implemented measures to encourage foreign investment. This includes regulatory reforms and initiatives to improve corporate governance, making it easier for foreign investors to navigate the Japanese market. As Japan continues to open its doors to international capital, investors can benefit from increased access to a diverse range of investment opportunities. In fact, the Council for Promotion of Direct Foreign Investment in Japan has created a new “Strategy for Promotion of Direct Foreign Investment in Japan” which began in June 2021. They are striving to double the inward Foreign Direct Investment in stocks to 80 trillion yen by 2030 (https://www.meti.go.jp/english/policy/external_economy/investment/index_FDI_into_Japan.html).
AI & Technical Innovation
Japan's technological innovation is another driving force behind the attractiveness of its stock market. With a focus on research and development, the country continues to lead in sectors like robotics, artificial intelligence, and clean energy. Investors looking to capitalize on the future of technology may find the Japanese stock market particularly enticing, as it provides exposure to cutting-edge industries that are likely to shape the global economy in the years to come. “Japan’s leadership in AI governance and innovation signifies a dynamic market for AI-driven solutions. As the country pioneers responsible AI practices and collaborations, it sets an example for global markets looking to navigate the complexities of AI implementation and governance. This underscores the growing importance of ethical and responsible AI practices in the business landscape” (https://multiplatform.ai/japan-at-the-forefront-of-ai-responsible-governance-and-global-collaboration/)
Overall
While no investment is without risks, the Japanese stock market presents a compelling case for those seeking a balance of stability, innovation, and growth potential. As global markets become increasingly interconnected, diversifying into the Japanese stock market can provide investors with exposure to a unique blend of established industries and emerging technologies, making it a promising addition to a well-rounded investment portfolio.
Thank you for reading The Simple Side. If you have read this far through the article then think about taking action - make it worth your while. Feel free to share, subscribe to the publication for updates, or go read other interesting articles below.
Throw some insight into the comments!