Japan's stock market is on a tear. Is it too late to jump in?

Japanese stocks are largely trouncing the U.S. market in 2023, and there may be plenty of fuel for further outperformance, analysts said.

The broad Tokyo Price Index, or TOPIX 180460 , ended Wednesday at ¥2,133.61, up 0.3% for its highest close since Aug. 3, 1990, according to Dow Jones Market Data. The benchmark Nikkei 225 NIK was up more than 15% year-to-date through Wednesday, outpacing the S&P 500’s SPX 8.3% rise. What’s driving the rally? While borrowing costs for U.S. companies jumped last year as the Federal Reserve aggressively hiked interest rates, the Bank of Japan has maintained its ultraloose policy. The yield on the 10-year Japanese government bond TMBMKJP-10Y is back below 0.5%. But that’s not it, said David Rosenberg, president of Rosenberg Research, in a Wednesday note.

Also, nearly 50% of Japanese companies have net cash on their balance sheets, Rosenberg observed, versus just over 20% in the U.S., while roughly 54% of the TOPIX members are trading below book value versus 7% in the S&P 500. And then there’s billionaire investor Warren Buffett, whose Berkshire Hathaway Inc. BRK.A BRKB has boosted its stake in five Japanese trading conglomerates and now has more equity exposure in Japan than any other country outside the U.S.

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