After rally in 2023: Reforms continue to propel Japan equities

Japan equities rallied last year. The TOPIX and Nikkei-225 indices showcased remarkable performance in 2023, reaching 33-year highs with annual returns of 25% and 28% respectively, in yen terms. This upward trajectory continued into January 2024, with the TOPIX hitting a 34-year peak, underpinned by enduring investor optimism.

Eastspring Investments credits this success to ongoing corporate reforms and an enhanced focus on return on equities, alongside a weak Yen bolstering exporter profits. “At the start of last year, we indicated that it felt like a new phase for Japan – with much improved focus on price discipline and improving profits,” states Ivailo Dikov, Head of Japan Equities at Eastspring Investments, highlighting a shift towards a more normalized market environment driven by improving fundamentals.

The Tokyo Stock Exchange has played a pivotal role in encouraging transparency and improvement among listed companies, particularly those underperforming, says the Eastspring analysis. “The TSE corporate governance reforms and the potential for return on equity (ROE) improvements has a big effect on the ‘value’ end of the market,” Dikov notes. He emphasizes that the corporate reforms are a multi-year structural theme aimed at enhancing balance sheet efficiency and long-term profitability.

Read more at eastspring.com/lu.