Economic Indicators
Japan
Years of reforms could lend durability to Japan’s upswing
Sean Tian
May 3, 2024
The story of Japan overcoming its Lost Decades is deep and fascinating. In addition to this analysis by Capital Group equity analyst Sean Tian, you can read our main analysis of the Japanese economy by economist Anne Vandenabeele; an examination of how cultural and rules changes might boost markets by equity analyst Shintoku Nishiwaki; and a look at the positives of inflation and the “ramen index” by equity portfolio manager Kohei Higashi.
I think one of the keys to the shift in Japan’s economy is its durability. These changes aren’t one-year movements; they’ve been going on for the last 10 years or so. Reforms to corporate governance and the “Abenomics” programs instituted under former Prime Minister Shinzo Abe have provided powerful roots for today’s economic green shoots.
For example, when I compare the earnings-per-share growth for companies in Japan over the last decade, they’re some of the best figures across all of Asia, including fast-growing India. It’s quite remarkable, and I think there’s still a lot of growth to come. Not only is the market starting to notice Japan’s potential, many of its companies are very competitive globally and stand to benefit from friendshoring and other geopolitical developments.
One example is Japan’s semiconductor sector, which has been somewhat undiscovered. The research and development pool is very deep, benefiting from a technology ecosystem that stretches back decades. Consequently, a few of these companies essentially have global monopolies on materials or equipment critical to the functioning of the modern world. I think they’re very attractively valued and global investors have tended to overlook them.
I’m also bullish on fast-moving consumer goods — items like food and personal care that typically have short shelf lives. There is limited competition in this subsector, and companies often have steady recurring income, solid pricing power and low labor cost ratios. That means they’re better positioned to expand margins in an inflationary environment than some traditional retailers.
Explore topics
Related Insights
Related Insights
-
-
-
Long-Term Investing