Japan’s stock market experienced a remarkable surge, reaching unprecedented heights as the election of new political leadership in Tokyo sparked investor optimism for enhanced fiscal support and a stable monetary policy. The Nikkei 225 index soared by 4.8% following the election of staunch conservative Sanae Takaichi as the leader of the ruling Liberal Democratic Party, positioning her to potentially become Japan’s first female prime minister.
The market rally was prominently driven by significant gains in sectors such as real estate, technology, and consumer cyclical stocks. Investors interpreted Takaichi’s leadership as indicative of ongoing stimulus measures, which alleviated concerns regarding imminent policy tightening by the Bank of Japan (BoJ). Peter Boockvar, Chief Investment Officer of One Point BFG Wealth Partners, highlighted that Takaichi’s past comments suggested a preference for continued fiscal and monetary stimulus, even in the face of rising inflation.
After experiencing decades of deflation and sluggish growth, Japan’s focus on corporate reforms and improved shareholder returns has made it one of the most appealing developed markets. The recent political shift is anticipated to further boost this trend, if only in the short term. Year-to-date, the Nikkei is up more than 20%, surpassing the performance of the S&P 500 and Europe’s Stoxx 600 index.
Warren Buffett recognized Japan’s investment potential several years ago and has made significant investments in the country’s five major trading houses. Noting their attractive valuations, reliable dividends, and cash-generative businesses, Buffett’s endorsements have shifted market sentiment towards what was historically seen as a value-trapped market. Stocks like Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo have experienced remarkable growth, with some more than tripling since Buffett’s initial investments five years ago.
For U.S. investors eager to capitalize on this equity bull run, several avenues are available. Broad exchange-traded funds such as the iShares MSCI Japan ETF (EWJ), WisdomTree Japan Hedged Equity Fund (DXJ), and the iShares MSCI Japan Value ETF (EWJV) provide exposure to major Japanese firms. The Fidelity Japan Fund (FJPNX), a mutual fund recognized for its strong performance, has also shown an impressive 28% year-to-date gain, placing it among the top performers in its category.
Investors can also consider individual stocks listed in U.S. markets that provide direct exposure to Japan, such as Toyota (NYSE: TM), Honda Motor, and Sony Group. Additionally, for those looking to invest indirectly in Japan, Berkshire Hathaway’s substantial holdings, valued at over $20 billion in Japanese equities, present another option.
