Japan 2.0: The case for Japanese equities | Part II

March 2024

Part one of this series (“Japan 2.0: A New Paradigm?”) discussed the history of the Japanese economy. It summarized the evolution of Japan’s economic boom of the 1980s through the decades of weak economic growth and low inflation from the 1990s to the present. It also pointed out that Japan appears to be benefiting from post-pandemic dynamics, a de-risking of global supply chains, a return of wage gains, and a weaker, more competitive currency. The key observation was that, from a macroeconomic perspective, Japan may have finally escaped the disinflationary undertow of the past three decades, and Japan may be facing more tailwinds than headwinds.

In this paper, we focus on equity market reforms in Japan designed to boost shareholder returns, activism, raise stock market valuations, promote mergers and acquisitions (“M&A”), and unlock trillions of household savings held in cash. Many of these changes have their roots in former Prime Minister Abe’s reform agenda that began in 2012. Abe was seeking to combat the high debt and low economic growth of the prior three decades. Now, the coordinated efforts from the government, the Financial Services Authority, and the Japan Exchange Group’s Tokyo Stock Exchange (“TSE”) could unlock shareholder value and boost investor returns.