March 29, 2024
Japan: One Page Update
Last June in 2023, while visiting Japan, I wrote a lengthy blog regarding the boom and bust of the Nikkie 225 and the aftermath of the 1980s bubble economy. It is a rather lengthy blog. Please see link:
Japan Blog II – Can a Strengthening Currency Bring a Recession? Imagine: Nikkei 225
Rather than being predictively less optimistic regarding various economic challenges Japan has been working through for over 30 years, we argued that it is time to take a deep dive as there are many green shoots. We are optimistic about the recovery and suggest that the Nikkie 225, which has been waiting for over 30 years, might finally reach its all-time high, which has not been seen since 1989, in the next 18 months. This implied a 15 percent increase from when we wrote that blog. We did not have to wait 18 months. Eight months later, on February 22, 2024, the Nikkie 225 closed at 39093.
Please see chart:
Our argument is simple. The price-to-earnings ratio (P/E) was about 20, their interest rates were not too far from zero, and the earnings growth rate for the Nikkie 225 was above 18%, making this market seem attractive, especially considering the valuations they once traded in the 1980s.
So, now what? Some analysts predict the Nikkie 225 could trade above 50,000 in the next few years. We will increase our price target for the end of 2024 to 43,000. We believe Japan offers a broad-based return. Their central bank has abandoned negative rates, yet the Yen remains favorable for exports and tourism. In short, we remain bullish on Japan.
DISCLOSURE:
The Nikkei-225 Stock Average is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange. The Nikkei Stock Average was first published on May 16, 1949, when the average price was ¥176.21 with a divisor of 225. *We are using an official divisor for this index.” Bloomberg
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