A recession was declared in Japan earlier this month after the economy contracted at an annual rate of 0.4 per cent in October to December, following a contraction of 3.3 per cent in the previous quarter, according to official statistics.
Two consecutive quarters of contraction are considered as an economic indicator of a technical recession.
However, Japan’s benchmark stock index, Nikkei 225, jumped 2 per cent to 39,029 last Thursday, surpassing the previous record high set in 1989.
According to deVere Group’s chief executive Nigel Green, the main driver of Japan’s stock market resurgence lies in the robust corporate earnings reported by major companies.
“Banking, electronics, and consumer stocks, in particular, have displayed stellar financial performances, instilling confidence in investors,” Mr Green said.
“The corporate sector’s ability to weather economic challenges and deliver strong earnings signals resilience and adaptability.”
Foreign investors are further incentivised to dip back into Japan’s equities market thanks to the government’s implementation of “investor-friendly” regulatory reforms aimed at “streamlining procedures, reducing bureaucracy, and enhancing transparency”, according to the CEO.
“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.”
The yen has also weakened by approximately 6 per cent this year, with projections that it is on track to drop to 33-year lows.
While a “double-edged sword”, Mr Green said that this weakening currency will see Japanese exporters, and the consequent global economy, reap the rewards.
“For global investors, a weaker yen enhances the competitiveness of Japanese products on the global stage, making investments in Japanese companies more attractive.”
Namely, Japanese exports hit a record high in 2023, according to figures released by the Ministry of Finance last month, growing 3 per cent to US$680 billion.
Improved corporate governance to reel in global investors
The Asian giant has doubled down on enhancing its corporate governance, with foreign investors, who increasingly prioritise ethical and well-governed investments, being presented with an opportune time to back corporate Japan.
“Tokyo’s proactive measures to improve transparency, accountability, and shareholder returns have created a business environment that instills confidence,” Mr Green said.
“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.”
Noting the attractive combination of robust corporate earnings, investor-friendly reform, a weaker yen, and a commitment to improved corporate governance, he said that a compelling picture is painted for global investors considering investments in the world’s fourth-largest economy.
“It seems that 2024 is set to be the year that global investors, recognising the unique and lucrative prospects offered by its resurgent stock market, rediscover and pile back into Japanese equities,” Mr Green concluded.
