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What is driving Japan’s economic revival?

Byeditor

Apr 3, 2024

The economic story of Japan is one of great interest and has seen significant fluctuations over the years. In the 1980s, Japan was a shining example of economic success as the second largest economy in the world. However, in December 1989, the Japanese stock market peaked with 45% of the world’s stock market capitalization. This marked the beginning of three decades of economic stagnation and deflation, leading to Japan’s diminished presence in global markets. Today, Japan’s market participation stands at just 6%, but there are signs of a resurgence in the Japanese economy. In 2023, Japan led gains in global stock markets and has continued this positive momentum into 2024.

There are several key factors that have contributed to this resurgence. One significant change has been the return of inflation after years of deflation. This has led to an increase in earnings per share for the MSCI Japan index by 8.3%. Global demand for manufactured products and the improved pricing power of companies, particularly those targeting the domestic market, have also played a role. Furthermore, the Japanese market offers diversification opportunities that enhance portfolio performance and correlation.

Government policies have been instrumental in driving this economic turnaround, with reforms in the NISA program encouraging more investment in stock assets. The restructuring of previously inefficient companies has led to increased profits and better stock performance. While there are challenges such as an aging population and high government debt, Japan’s focus on areas like medical technology, factory automation, and transitioning to a low-carbon economy present opportunities for future growth and innovation. With measures in place to address these challenges, Japan’s long-term economic outlook is optimistic.

By editor

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