Japan’s stock market roared higher in the first half of 2023, trouncing gains scored by equities in the U.S. and other developed markets, while defying the tightening trend at other global central banks.
In the year’s first half, Japanese stocks returned 24% in the local currency, as measured by the MSCI family of international indexes, while the U.S. equivalent rose 17% in the same stretch “by successfully fighting the Fed,” according to Scott Opsal, director of research and equities at The Leuthold Group.Stocks have continued to drift higher in the second half, with Japan’s Nikkei 225 NIK gaining 1.2% on Monday, advancing 25.3% on the year, according FactSet.
Related: ETF investors are following Warren Buffett and betting big on Japan. But here are key risks to consider. Focus on BOJ meeting Investors aren’t likely to forget the 70%-80% losses on Japanese stocks of the 1980s. But its corporations since have kept “large helpings of excess cash and unproductive assets” on their balance sheets, with nearly 50% of Japanese stocks still trading at less than one times book value, according to Opsal’s estimates.
Finally, Opsal sees Japan’s modest economic growth and inflation approaching 3.5% as trends that could encourage consumer consumption and business investments, “thereby improving future economic growth prospects.” The Federal Reserve, European Central Bank and the Bank of England have been jacking up rates to fight inflation.