The author of this article argues that Japan's return as a major investment destination is a structural shift. Along with many others of course, the country is not immune to forces such as new US tariffs. What underlying changes and qualities will count?

The following article about Japan comes from Ocorian, which provides services to financial institutions, asset managers, corporates and HNW individuals. The writer, Robin Harris, regional head of APAC, Hong Kong, at the firm, addresses the investment case for Japan. This is not a new line, of course – we have published several articles about the case for holding exposures to this economy. (See here, here and here.) Clearly, following the US tariffs levied in early April, Japan is affected, along with many other countries. But what other considerations apply? 

The news service is pleased to share these perspectives; the usual disclaimers apply to views of outside contributors, and we welcome debate and commentary. To jump into the conversation, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Japan, long considered a paradox in the investment world, has seen a dramatic resurgence in its appeal over the past year after decades of stagnation, deflation, and demographic challenges. Once the economic darling of the 1980s and early ’90s, the country spent years in limbo, but sweeping corporate reforms and a resurgent economy have reignited global investor interest. 

Asian and overseas investors are once again pouring capital into the world’s third-largest economy, drawn by confidence in its growth potential and a lingering fondness for the Land of the Rising Sun.

Japan’s corporate overhaul
One of the key drivers of the country’s renewed appeal is its continuing corporate governance rebirth. Japanese firms were long criticised for being inefficient, insular, and averse to putting shareholder value first. But government and Tokyo Stock Exchange-led reforms in recent years have done much to correct those problems.

One of the more significant initiatives has been a call to companies by the Tokyo Stock Exchange to improve profitability margins. Firms have been urged to optimise capital deployment, increase transparency, and return more to shareholders. These actions have translated into higher share repurchases, higher dividend payouts, and more engagement with foreign investors – all significant signs of a matured and investor-friendly market.

The election of Shigeru Ishiba as Prime Minister in October 2024 has also helped to change perceptions, he placed economic recovery at the core of his policy agenda (1). By vowing to boost the minimum wage, and enhance digitalisation and innovation in chosen sectors, his government is paving the way for a more dynamic and competitive economy.

A new-born opportunity for investors
Japan's economy, which for so long had become strained under weak growth and low inflation, is now showing distinct signs of life. The pandemic recovery has been propelled by increasing consumer spending, the re-emergence of tourism, and strong corporate earnings. Inflation, which for years had stubbornly remained below target levels, has returned in a controlled and manageable manner, heralding the demise of deflationary pressures.

The Bank of Japan has also been a primary driver of the investment landscape. While Japan remains one of the last developed nations to maintain ultra-low interest rates, there are indications that the BOJ will shift the direction of monetary policy. Any adjustment in interest rates would lead to investors becoming more optimistic, leading to additional capital inflows into Japanese fixed income, equities and real estate. 

Moreover, Japan's economic prowess is underpinned by its strong manufacturing and technology sectors. Green energy initiatives, robotics, and semiconductor production are attracting significant foreign direct investment (2), and Japan is a central player in the rebalancing of global supply chains. As geopolitical risk pushes nations to diversify their industrial base, Japan's reputation for quality and innovation makes it a compelling investment location.

Global investors rekindling their love for Japan
Many foreign investors who appreciate Japan's economic past are returning en masse, as the country’s resurgence continues. In 2023, namely the month of May, Japan saw record-high inflows into its stock market as the Nikkei gained 28 per cent, which only jumped higher in 2024 with a 17 per cent increase (3) , with institutional investors increasing their positions in big companies. One of whom is Warren Buffett, who has increased stakes in several Japanese companies. 

Buffett's increased investment in Japan's five large trading companies: Mitsubishi Corp, Mitsui & Co, Sumitomo Corp, Itochu Corp, and Marubeni Corp added further confidence to the renewed faith in the country's economic trajectory.

Additionally, private equity firms and asset managers are homing in on opportunities in Japan's undervalued corporate sector. Many Japanese companies have huge cash reserves and undervalued assets, presenting appealing prospects for restructuring and value creation.

Ocorian’s 2024 Family Office Regional Report for Asia identified that investors are pivoting towards investing in Japan equities, driven by second generation family members, who are playing a more active role in shaping the direction of family offices.

Japan’s investment renaissance is only just beginning
Japan's return as a major investment destination is a structural shift fuelled by corporate renewal and economic revamping. It is an age of rediscovery for investors, an opportunity to take advantage of a market that is undergoing change but remaining strong in its essential qualities of stability, creativity, and stamina.

With robust corporate governance, a transforming economic landscape, and high-pressure global investor interest, Japan is once again proving that its best days could still lie ahead. As capital surges into the country at record levels, investors who act now might be at the forefront of an historic economic renaissance. 

Footnotes

1, https://japan.kantei.go.jp/ongoingtopics/policies_kishida/newcapitalism.html

2, https://tradecouncil.org/wp-content/uploads/2025/01/Investing-in-Japan.pdf

3, https://edition.cnn.com/2024/02/22/business/japan-nikkei-225-record-high-intl-hnk/index.html