Can Japan's Bull Run Continue?

Japan has overpromised and underdelivered for UK investors for years now, but is it time to look at the Asian country again?

James Gard 3 March, 2021 | 9:15AM
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Mount Fuji, Japan

Away from the Bitcoin and GameStop drama, the Japanese stock market has been quietly notching up 30-year highs. Japan has had many false dawns as a region, surging one year and drastically underperforming the next. In terms of asset allocation, it’s not well held by UK investors; while Japan’s biggest brands like Sony and Nintendo have international recognition, the market itself is not well understood outside of the country itself. What’s behind the change in fortunes for Japanese stocks and can it be sustained?

North Asia’s swift rebound from the coronavirus crisis has helped Japan’s economic prospects, with China the key to driving the region’s recovery; fund managers have noted that Asia-Pacific has started to emerge as a self-sufficient trading bloc since the crisis. Recent economic figures have inspired the stock market’s gains: while the Japanese economy contracted by 4.8% in 2020, the fourth quarter growth beat expectations with a 3% gain. This data helped the benchmark Nikkei breach 30,000 points for the first time since 1991. Unlike many developed markets such as the US, whose indices have hit record highs in recent years, Japan’s stock market is still off the peaks reached in the economic boom in the 1980s.

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James Gard  is content editor for Morningstar.co.uk