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Japan deep dive – are we on the cusp of a bull market?

We look at how Japan’s economy and stock market has fared, where the opportunities could be and how Japanese Wealth Shortlist funds are doing.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Once upon a time, Japan was the original Asian success story. It became the envy of the world during the 1980s as its stock markets surged, exports boomed, and the property sector went from strength to strength.

But how the mighty have fallen. Japan’s economic bubble burst in the late 1980s to early 1990s, resulting in recession and years of sluggish growth – a period now known as ‘The Lost Decade’. The impact of this period scarred many investors and left them wondering if they should ever invest in Japan again.

It’s been a long and difficult journey for investors ever since, and while there have been glimmers of hope over time, they mostly failed to gain any traction. As a result, the phrase ‘false dawn’ became commonly linked to Japan, maybe unfairly at times, suggesting that signs of recovery or success are mostly short lived.

This has been largely the case since the 1990s. But things are starting to look at little different now.

Japanese markets have hit the headlines this year, reaching heights not seen since the 1990s. This has led to interest and excitement in Japanese companies being reignited, and begs the question, is this time round really different?

This article isn’t personal advice. If you're not sure if an investment is right for you, ask for financial advice. All investments fall as well as rise in value, so you could get back less than you invest.

What’s happening in the economy?

Unlike many other countries around the world, Japan’s GDP, or gross domestic product, is beating expectations. The economy grew 2.7% in the first quarter of this year, beating earlier forecasts of 1.6%. To put this into context, the US and UK’s GDP fell short of expectations, growing 1.1% and 0.2%, respectively.

A large driver has been the surge in foreign visitors. Following the removal of all pandemic measures, tourists have flocked back to Japan, which has boosted consumer spending. Some businesses have rebounded quickly as a result.

Moving forward, growth is expected to slow. While projections remain strong and upbeat, Japanese exports are likely to be sluggish this year. That’s largely because of the weaker than expected demand from China. The Japanese yen could also add to this pressure.

Over the last few years, the yen has fallen to historical lows. It’s fallen so sharply in fact, that some are questioning its status as a ‘safe haven’ currency.

Given Japan import a lot of resources, particularly energy, a weak yen has made these transactions much more expensive. This has stretched domestic income and pushed inflation higher.

A weakening yen isn’t all bad news though. It’s helped boost the attractiveness of Japanese goods, making them relatively cheaper on the world market. While it might not have benefited export companies as much as it once did, given some Japanese companies have shifted their production overseas, it’s still good news for a major exporting nation like Japan.

And then there’s the stock market.

What’s driving the stock market’s rally?

Japan has waited more than three decades for its moment in the sun, and many feel it’s on the cusp of a bull market.

Since the wobbles caused by the banking sector shocks in March, the Japanese stock market has bounced to near all-time highs.

Japanese stocks have also benefited from relatively ‘cheap’ valuations and a long-awaited return of inflation. All of which have seen Japan’s most well-known index surpass its previous high, set all the way back in 1990.

But is this success here to stay?

Why is the Japanese stock market proving so popular with investors and where are the opportunities?

One of the most notable drivers is the corporate governance changes. Historically, Japanese companies haven’t upheld the same standards as in the western world.

To combat this, the late Shinzo Abe, one of Japan’s most loved prime ministers, kickstarted a change in governance standards. Fast forward to today and there’s been large-scale change.

The Tokyo Stock Exchange (TSE) has undergone its largest overhaul in over a decade and committed to increase the standards of all listed Japanese companies. This includes bettering their workforceand board diversity, transparency and accountability, but also a focus on shareholder returns.

If the TSE feel a company is trading below book value, or in other words is undervalued, they need to present a plan on how to improve shareholder returns. Progress is slow, but improvements have been made which could lead to companies being viewed more positively and attracting foreign investment.

Another driver is Japan’s stance on inflation and interest rates.

While global economies have been fighting soaring inflation, Japan has welcomed it following years of deflation. For the first time in decades, Japanese businesses are increasing prices and committing to upping wages.

While other central banks are hiking interest rates at record speeds, the Bank of Japan have gone against the grain and kept rates below zero. This means borrowing costs for Japanese businesses are still relatively cheap, which could help spur growth.

It feels like it’s time for Japan to show the world what it’s got to offer. Of course, uncertainty remains and if we’ve learnt anything over the last few years, things can change very quickly. Investors with a long time horizon could be rewarded, but ups and downs should be expected along the way.

How have our Wealth Shortlist funds performed?

Japan’s stock market tends to be perceived as fairly style driven. This comes down to a lot of Japanese companies showing traits and characteristics that define both growth and value investing. So, when a rotation in style occurs, it can impact performance.

Over the last 12 months, both styles have come in and out of favour, which means the performance of our Wealth Shortlist Japanese picks has been mixed.

For more details on each fund and its risks, use the links to their factsheets and key investor information below. Investing in funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own and they understand the specific risks of the fund before they invest.

Man GLG Japan CoreAlpha

Man GLG Japan CoreAlpha was the best performing fund in the Japan sector of the Wealth Shortlist. It returned 16.11%* over the last 12 months, meaning it beat the average return of funds in the IA Japan sector by 3.42%.

The lead fund manager Jeff Atherton is a true value investor. This means he scours Japan for lowly-valued companies that have fallen on hard times, which he believes hold potential for a recovery.

He wants to invest in companies that are ‘cheaper’, in other words, sitting at a lower share price than their true worth, but could bounce back or undergo a turnaround.

This style of investing rallied in the latter part of last year and has held up well at times so far this year, which helped the fund’s performance. Atherton’s investments in financials and industrials also helped drive performance over this period. Past performance isn't a guide to the future.



FSSA Japan Focus

FSSA Japan Focus was the worst performing fund in the Japanese section of the Wealth Shortlist. Over the last 12 months, the fund has returned 5.91% versus the 12.69% gain for funds in the IA Japan sector.

Sophia Li is the fund’s lead manager, and a growth-focused investor. She prefers to invest in companies that she thinks are high quality and capable of generating above average earnings – a style known as growth investing.

Sectors like industrials and technology make up a large part of the fund.

At times over the last 12 months, growth has been out of favour, so Li’s investments in these sectors have hampered performance. Sectors linked more closely to the economy, including financials and oil & gas, held up better. As Li doesn’t tend to invest in these areas, she missed out on some of the gains made here.



One year is a very short timeframe. Managers with different strengths, styles and areas of focus will perform differently at different times in economic cycles.

This is why we think it’s sensible for investors to invest for the long term and regularly review them to ensure they are right for you. It is also important to consider a variety of managers with different investment styles and strategies to make sure your portfolio is properly diversified.

Annual percentage growth

June 2018 to 2019 June 2019 To 2020 June 2020 To 2021 June 2021 To 2022 June 2022 To 2023
FSSA Japan Focus -3.90% 33.38% 10.62% -27.54% 5.91%
Man GLG Japan CoreAlpha Professional -2.29% -15.15% 21.81% 8.11% 16.11%
IA Japan -3.54% 7.92% 13.20% -11.76% 12.69%

Past performance isn’t a guide to future returns. Source: *Lipper IM, to 30/06/2023.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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