The unexpected attraction of the Tokyo Stock Exchange in a sluggish Japanese economy

The Unexpected Attraction of the Tokyo Stock Exchange in a Japanese Economy in Slumber

Despite an economic slowdown, Japan sees its stock market, notably the Nikkei 225, continue to thrive, defying expectations and attracting global attention.

A sluggish economy but a thriving stock market

The contrast between Japan's economic situation and the performance of its stock market is stark. As the country faces an economic slowdown, with its GDP contracting 0,1% in the fourth quarter of 2023, the Nikkei 225 continues to break records. This disconnection between the real economy and the financial world is not new, but it is particularly marked in the Japanese case.

Investors, including iconic figures like Warren Buffett, remain optimistic about the outlook for the Japanese stock market. This confidence is reflected in a significant increase in the Nikkei 225 index, which has already recorded an increase of more than 14% since the start of the year.

Reasons for persistent optimism

Several factors explain this enthusiasm for Japanese stocks. On the one hand, the Bank of Japan (BoJ) maintains an accommodating monetary policy, despite the end of deflation. This approach supports financial markets and makes equity investments more attractive. On the other hand, Japanese companies are showing a growing desire to improve their margins and reward their shareholders, which attracts more foreign investors.

In addition, the prospect of an economic recovery, although modest, gives cause for optimism. Economists like ING's Min Joo Kang predict a possible rate hike by the BoJ as early as June 2024 if growth rebounds, which could signal an improvement in economic conditions.

A promising future for Japanese stocks?

The resilience and attractiveness of the Japanese stock market, even in times of economic difficulty, highlights the importance of diversifying investment portfolios and not underestimating the potential of emerging or transitioning markets. Major U.S. banks, such as Morgan Stanley, JPMorgan and Bank of America, have raised their forecasts for Japanese stocks, showing confidence in Japan's ability to overcome its current economic challenges.

This phenomenon also illustrates how, in a globalized context, financial markets can sometimes evolve independently of local economic realities, offering unexpected opportunities to informed investors.


The Unexpected Attraction of the Tokyo Stock Exchange in a Japanese Economy in Slumber

Virginie Majaux

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