Riding the Wave? Expert Insights on Japan’s Booming Stock Market and New NISA Strategies for Beginners

Nikkei Stock Average, bottoming out by the end of March and then possibly going up…

Japanese stock prices have been rising and are approaching the highs of the ’89 bubble period. We talked to an expert about what the background is, what will happen in the future, and what individual investors should do.

The Nikkei Stock Average has been performing well since last year and has risen even higher this year, reaching 36,984 yen at one point on January 23. It is now close to its highest price of 38,915 yen, which was reached at the end of 1989.

Mutsumi Kagawa, chief global strategist at Rakuten Securities, advises that ordinary retail investors should keep in mind the following five factors when considering stock investments : long-term, diversified, accumulation, low-cost, and tax-efficient investments. Mr. Kagawa commented on the future of the Nikkei Stock Average , “ It is not surprising to see it exceed38,000yenthis year.Next year, the level of 40,000 yen is also conceivable, depending on the situation,” he believes.

The current stock price, on the other hand, “has been rising at too fast a pace, so it has been struggling,” Kagawa believes, and there is a possibility that it will bottom out by the end of March and then move higher.

Why Japanese stocks are rising…Foreign investors account for “about 70%” of trading volume in the Tokyo market.

Why are Japanese stock prices rising in the first place? Mr. Kagawa focuses on the trends of foreign investors and individual investors. In particular, he points out that foreign investors account for about 70% of the trading volume in the Tokyo market.

First, “foreign investors are reviewing and buying Japanese stocks,” says Kagawa. With the recent rise in prices, Japan is emerging from its long-lasting deflationary economy, and foreign people believe that as prices rise, individuals and companies that have mainly deposited money will start to invest to counteract the diminishing value of their deposits.

Furthermore, they believe that the Tokyo Stock Exchange’s request for companies to take measures to correct their stock prices will also have an effect. Specifically, share prices are to improve in comparison to net asset value per share (PBR); a company with a PBR of less than 1x means that it has not reached the amount of money it could have sold its assets for after dissolution. This means that companies with P/B ratios of less than 1x have not reached the value of their assets sold in the dissolution. Companies have been taking stock price countermeasures, such as share buybacks, dividend enhancements, and medium-term management plans that lead to earnings growth. Because of these factors, Kagawa believes that corporate earnings will continue to increase in the future.

Another is that Japan’s position in the Asian market has been reaffirmed. The Chinese economy is undergoing an adjustment due to the bursting of the real estate bubble, and stock prices continue to fall. Mr. Kagawa points out that “foreign investors are beginning to reduce their investment in China, both direct and indirect. They are reducing not only direct investments such as factory construction, but also indirect investments such as stock purchases, and instead are shifting their investments to Japan and India, where there is a sense of stability.

Japan is also being reevaluated as a target for direct investment. There is even a move by a major Taiwanese semiconductor manufacturer to build a plant in Kumamoto Prefecture. Japan’s stability is being evaluated in terms of political risk and other factors.