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Japan’s economy demonstrated resilience in the fourth quarter of 2024, achieving an annualised GDP growth rate of 2.8%, surpassing analysts’ expectations of 1.0%. This marks the third consecutive quarter of expansion, primarily driven by robust business investments and a modest uptick in private consumption. Japanese equities have also exhibited notable performance last year. The Nikkei 225 index closed December 2024 at 39,894.54 points, and the TOPIX closed at 2,784.92 points, the highest year-end closing price recorded since 1989. Looking ahead, the near-term Japan equities outlook comes with challenges, but asset managers keep a bullish stance for the mid-to-long term.
In January, Japanese equities were the laggard. While the Nikkei 225 fell by 0.8%, the TOPIX saw a modest increase of 0.1%.
M&G Investments emphasizes the distinction between Japan’s macroeconomic performance and stock market returns. Over the past decade, while nominal GDP grew at an annualized rate of 0.9%, the stock market delivered a 10% compound total return in local currency terms. This was driven mainly by high single-digit compound growth in stock market earnings, with additional help from dividends, the asset manager explains.
While M&G sees several known unknowns on the macro front, their long-term view on Japanese equities remains: “We believe the market offers an attractive long-term risk-reward opportunity,” says Carl Vine, Co-Head of Asia Pacific Equities. “Listed Japanese equities remain attractively priced versus intrinsic value, and changing corporate behaviour leaves us confident that the “self-help” opportunity-set will be harvested in support of both earnings growth and market returns”, he adds.
Japan equity outlook: Concerns over impact of Trump’s trade policies
The recent imposition of tariffs by U.S. President Donald Trump has introduced uncertainty into global markets, with also potential implications for Japanese equities. In early February 2025, the U.S. announced a 25% tariff on imports from Canada and Mexico and a 10% tariff on goods from China. While Japan was not directly targeted, the interconnected nature of global trade raises concerns about indirect effects on Japanese companies, particularly those with supply chains involving the affected countries.
Japanese automakers, for instance, have significant manufacturing operations in Mexico, and the new tariffs could impact their cost structures and profitability. Following the tariff announcement, Japanese auto stocks experienced notable declines, reflecting investor apprehension about potential disruptions.
Asset Management One acknowledges that Japanese stocks’ underperformance year-to-date has been largely due to macroeconomic concerns, including the impact of U.S. tariff policies. They suggest that while uncertainty surrounding Trump’s policies may weigh on share prices in the near term, the direct impact on Japan might be milder than other nations.
Also other asset managers see the tables turn in the coming months.
“We expect Japanese markets to climb in February. Japan should see robust consumer spending and capex, given high levels of wage growth and prospects for further expansionary fiscal policy and continuation of easy monetary policy in the run-up to its July 2025 upper house election,” said Tokio Marine Asset Management in their January Japanese Equity Market Review.
Sumitomo Mitsui DS Asset Management expects the Nikkei 225 to reach 45,400 and TOPIX to 3,190 by the end of 2025. They see steady growth of corporate earnings, the virtuous cycle of “wage increase and mild inflation,” and improvements in corporate governance as drivers for performance. With these tailwinds in place, the Japan equities outlook remains positive for long-term investors.
