Japanese stocks closed higher overnight as the Tokyo market continued to return to favour.
The Nikkei 225 index gained 1.29%, to reach 22,841.12, and has recently hit four-month highs.
The pattern of the last three months would suggest steady gains, with growth from 22,697.3594 on 17 July to the latest close.
The bubble that burst
But the journey has been a bumpy one, with a low during the period of 21,857.4297 on 13 August and a high of 24,270.6191 on 2 October.
That said, analysts see plenty more upside from Japanese stocks and the market is, consequently, of increasing interest to investors across the world.
Tokyo’s rehabilitation has been a long time coming. Japan’s economy entered a so-called ‘lost decade’ in the Nineties, since which time it has “lost” at least another 15 years.
A huge bubble in equity prices and real estate values had built up towards the end of the Eighties. One valuation put the ground of the Imperial Palace in Tokyo at the equivalent of the entire state of California, while the share price of the telecoms giant NTT was discounting profits centuries into the future.
Japanese business seemed all-conquering as it snapped up prize American assets including the Mobil building in New York and the Columbia Pictures studio.
As the authorities struggled to revive Japan’s post-war miracle economy, the fall-out from the bubble was amplified by growing suggestions that the one-time export machine was becoming less competitive in the face of the emerging “little dragons” of East Asia, such as Malaysia and the Philippines.
Better growth outlook
But now, a number of factors are coming together to burnish the attractions of Tokyo stocks. One is price – the near ten-year boom on Wall Street has made US equities expensive, relative to those in Japan, which remains the world’s second-largest stock market.
Another is what has been a quiet revolution in Japanese corporate governance. Company bosses traditionally gave a low priority to investor relations and to dividend policy in a business culture described by critics as crony capitalism.
However, that has changed, with a generally more progressive approach to dividends.
Japan’s economic growth prospects are also looking brighter. The International Monetary Fund has raised its 2018 forecast for Japanese economic expansion by 0.1 percentage points to 1.1%.
A more liberal approach to much-needed immigrant labour, in light of Japan’s aging population, may improve further the growth picture.
Furthermore, growth of 1.1% this year may be a little better than had been expected, but lags the US (2.9%), the eurozone (2%) and the UK (1.4%).