Japanese stocks set to remain attractive amid Nikkei’s all-time high, weak yen

Japanese stocks are maintaining a record-breaking run this week, bolstering expectations that the central bank will soon end its negative interest rates policy that has weakened the yen and lured overseas investors.

The Bank of Japan (BOJ) has been following a policy of holding down interest rates to encourage consumer spending, in contrast to the sustained rate hikes by the US Federal Reserve for nearly two years to rein in inflation.

Foreign investors have taken advantage of the difference in interest rates — such as those holding onto US dollars — by scooping up stocks of Japanese companies. The strong earnings growth of Japanese listed companies, which are at attractive valuations, has further boosted investor demand.

Moreover, Japanese stocks are likely to remain attractive as Tokyo is pushing for corporate governance reforms that are likely to unlock more value, analysts say.

Global supply trends are also favouring Japan as more international companies look to diversify away from China and boost their capabilities in strategic sectors such as semiconductors including expanding their links with Japanese companies.

“Japan is absolutely an interesting market that has been really overlooked and is now being rediscovered by many global investors,” said Kei Okamura, senior vice-president at Neuberger Berman, a portfolio manager on the Japanese equities team.

Large caps, or companies with high market capitalisation, have led Japan’s stock market rally thanks to their improved profitability as a result of the weaker yen, particularly export-oriented companies. Foreign investors driving the rally have focused on familiar names, said Emily Badger, Portfolio Manager at Man GLG.

Sumitomo Mitsui Financial Group, which is up 20.5 per