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Japanese Stocks Look Interesting (Really) By Spencer Jakab

After four days of face-melting volatility, U.S. stocks show signs of stability in futures trading, but they're no longer the main show. The global bond market is, and its behavior is both unusual and scary . A 10-year Treasury note auction today will be watched closely.

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Stop me if you've heard this before : Japanese stocks look really interesting.

There have been many, many false dawns since Japan's epic bubble in stocks and real estate burst 35 years ago. This snapshot shows how the U.S. benchmark S&P 500 has fared versus the once-mighty Nikkei 225 since then-not pretty.

This isn't your dad's Japanese market, though. Economic and structural changes make what some have bitterly dubbed "the land where capital goes to die" a more compelling place to invest than the U.S., even with both stock markets currently on sale.

One is a trend that would be seen as negative in most other countries: inflation. After periods of stagnant or falling prices, real wages are rising in Japan and boosting nominal economic growth to levels not seen since the 1990s. The longer it's sustained, the better the odds Japan's economy finally escapes its decadeslong funk.

That creates a positive tailwind for non-Japanese investors. The yen fell to a multidecade low last summer. It has been strengthening steadily this year with the prospect of the Bank of Japan raising interest rates.

Japan was the last country to end the zero-rate experiment a little over a year ago. Bringing rates closer to those of other developed countries should be positive for the yen's value, but not much of a burden for its financially strong companies.

More significant than that is a real wave of corporate reform encouraged by Japan's government. Companies are unwinding cross-shareholdings . Many haven't been especially interested in what non-controlling shareholders want. That attitude is changing.

Japanese companies are increasingly using their cash piles to reward shareholders through stock buybacks. Fund manager GMO notes that companies are focused on their return on equity and that there was a 75% increase last year in repurchases. Japan also has become more open to corporate takeovers- even by foreign private-equity investors .

Finally, a tweak to tax-advantaged savings accounts has caused Japan's trillions of dollars in savings to flow into riskier assets like stocks. So far a lot of it has, in the tradition of "Mrs. Watanabe," the stereotypical Japanese housewife who plays in foreign markets. Based on valuation, one of the most attractive places to put that cash is right at home.

Could Japan disappoint again? Its companies are highly exposed to tariffs and, indirectly, to a flood of cheap Chinese manufactured products seeking a new home amid astronomical U.S. tariffs . That's why Japan's stock market entered a bear market this week.

But Japan's valuation, economic momentum and prospects for corporate reform make for a great setup. As the Economist magazine put it during a previous hopeful juncture: " Watanopportunity ."

Stocks I'm Watching

Apple : The stock dropped Tuesday, helping Microsoft overtake Apple as the world's most valuable company , after the White House said President Trump wants iPhones to be made in the U.S. Apple shares rose in premarket trading Wednesday.

Alibaba : Big Chinese tech stocks rallied Wednesday, despite the unveiling of 104% tariffs on China. American depositary receipts in Alibaba jumped 6% ahead of the open, after falling a similar amount Tuesday.

Cal-Maine : The company said it was cooperating with a Justice Department probe into the jump in egg prices , which Cal-Maine attributed to the avian-flu epidemic. The egg supplier also posted higher quarterly revenue and profit. Shares dropped nearly 5% before the bell.

Airbus : France's industry minister said Wednesday that U.S. tariffs destabilized cross-border supply chains , and highlighted the European aeronautics company in particular. Airbus stock fell nearly 3% in Paris.

Bang & Olufsen : The Danish consumer-electronics company said Wednesday it would raise prices further by May 1, in response to Trump's tariffs . Shares dropped in Copenhagen.

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About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

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April 09, 2025 06:49 ET (10:49 GMT)

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