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Investors to pile back into Japanese stocks in 2024

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Despite Japan falling into recession, 2024 will be the year investors “rediscover” and pile back into Japanese equities, with the main stock exchange topping a 35-year high, according to the CEO of a leading independent financial advisory and fintech.

The benchmark Nikkei 225 jumped 2% on Thursday, soaring to unprecedented heights and reaching 39,029, a significant leap that surpassed the previous record high set in 1989.

“The main driver of Japan’s stock market resurgence lies in the robust corporate earnings reported by major companies,” said deVere Group CEO Nigel Green.

“Banking, electronics, and consumer stocks, in particular, have displayed stellar financial performances, instilling confidence in investors, while the corporate sector’s ability to weather economic challenges and deliver strong earnings signals resilience and adaptability,” he said.

Green explained that a wave of optimism is sweeping through Japan’s equities market. The government’s commitment to implementing investor-friendly measures has played a crucial role in creating a favourable investment climate.

“Regulatory reforms aimed at streamlining procedures, reducing bureaucracy, and enhancing transparency are instilling confidence in foreign investors,” he said.

“The removal of barriers and the promotion of a business-friendly environment contribute to the positive sentiment, making Japanese stocks an increasingly appealing choice for those seeking long-term growth.”

Another significant factor contributing to the resurgence of interest in Japanese stocks is the depreciation of the yen against the dollar.

Yen at 33-year low

“The yen has weakened by approximately 6% against the dollar this year, and indications suggest that it is on track to drop to 33-year lows last seen in the late 20th century,” the deVere CEO said.

“This weakening currency is a double-edged sword that benefits Japanese exporters and, consequently, the overall economy.

“For investors, a weaker yen enhances the competitiveness of Japanese products on the global stage, making investments in Japanese companies more attractive.”

Japan’s commitment to enhanced corporate governance is set to become a linchpin in attracting foreign investors.

“Tokyo’s proactive measures to improve transparency, accountability, and shareholder returns have created a business environment that instils confidence,” Green added.

Responsible and sustainable practices

“The appointment of independent directors, improvements in disclosure practices, and aligning executive compensation with company performance demonstrate a commitment to responsible and sustainable business practices.

“Foreign investors, increasingly prioritising ethical and well-governed investments, are finding Japan’s corporate governance reforms ever-more appealing,” noted Green.

He concluded that, “the combination of robust corporate earnings, investor-friendly measures, a weaker yen, and a commitment to improved corporate governance creates a compelling narrative for those considering investments in Japan.

“It seems that 2024 is set to be the year that investors, recognising the unique and lucrative prospects offered by its resurgent stock market, rediscover and pile back into Japanese equities.”