Japan has the fourth-largest economy in the world, recording rapid annual growth since the 1940s. The Asian country’s growth is tied mainly to the expansion of the manufacturing sector and its aggressive approach to export trade. Over the decades, Japan has developed a highly diversified manufacturing and service economy, ranking as one of the world’s largest producers in the automotive, steel, and electronics industries. As one of the leading economies in the world, Japan attracts several foreign direct investments, contributing to the country’s increased employment rate and gross domestic product (GDP).
Investing in Japan
Japan’s rapid economic growth after World War II entered a decade-long stagnation in the 1990s, with the country’s growth rate lower than other industrialized countries. The deflationary period was called the “lost decade,” and foreign investment reached an all-time low. Upon his election in 2006, Prime Minister Shinzo Abe introduced “Abenomics,” a collection of economic policies that were targeted at weakening the yen and increasing inflation to 2%. Due to the Abenomics reforms, the Japanese economy exited deflation. Currently, the return on equity (ROE) of Japanese stocks is almost double 2012 levels, wages are rising, and employment rates keep soaring. Considering Japan’s economic outlook, now is a good time to invest in Japan.
Investment Opportunities in the Japanese Financial Market
Stocks
The primary stock exchange is the Tokyo Stock Exchange (TSE), one of the biggest exchanges in the world by market capitalization. Investors focusing on Japanese stocks can access the market from 9 a.m. to 11:30 a.m. and from 12:30 p.m. to 3 p.m., Monday through Friday.
Many institutional investors are diving into artificial intelligence stocks as the sector grows rapidly, with use cases extending across healthcare, finance, agriculture, and logistics industries. Some of the top AI companies in Japan include AI Inside Inc., Appier Group, and Morpho Inc., which are great to start investing in at the beginning of the year.
With world-leading companies committing to clean energy and sustainable practices, stocks in green technology are attractive picks for investors. In Japan, popular renewable energy stocks include Japan Renewable Energy Co. Ltd., JinkoSolar Holding Co. Ltd., and Trina Solar Co. Ltd.
Another sector growing in the Japanese stock market is healthcare technology. According to reports, 1 in 10 people in Japan are aged 80 and above; with such a delicate aging population comes the need to develop innovative healthcare solutions. Companies like Chugai Pharmaceutical, Otsuka Holdings Ltd., and Astellas Pharma Inc. are investing in digital health platforms, advanced diagnostics, and personalized medicine to meet healthcare demands.
Forex Trading
Forex trading, also known as foreign exchange trading, is a popular way for investors to explore Japan’s financial market. The forex market in Japan is one of the largest in the world. The Japanese yen (JPY) is also the third most traded currency in the world, after the USD and EUR. So it offers unique opportunities for investors who want to take advantage of currency fluctuations.
Japan is an export-driven economy, and the yen often plays a critical role in global trade. In addition, the yen’s “safe haven” status has made it an interesting option for those who want to trade currency pairs like USD/JPY (US dollar to Japanese yen) or EUR/JPY (euro to Japanese yen).
To trade forex, investors need to open forex trading accounts with regulated brokers. Many brokers in Japan offer platforms with advanced trading tools, real-time market data, and low spreads, which are important for minimizing costs. It’s also essential for traders to stay updated on market-moving factors like interest rate decisions from the Bank of Japan or economic data like GDP growth and inflation rates.
ETFs
The iShares MSCI Japan exchange-traded fund (ETF) is Japan’s most popular ETF. It follows the MSCI Japan Index, which gives a concise outlook of the Japanese market. The ETF covers companies in finance, tech, and manufacturing.
Some top companies in the iShares MSCI ETF include Toyota, a popular automotive maker; Mitsubishi UFJ, a global financial group; and Sony, a renowned multinational conglomerate. Others include Hitachi, Tokyo Electron, Keyence, Recruit Holdings, Sumitomo Mitsui, Shin-Etsu Chemical, and SoftBank, making up ten stocks representing 28% of the index. Finally, if you want to invest in European companies with a stake in the Asian markets, look into which car or tech companies own parts of an Asian company; for example, French carmaker Renault owns 43% of Nissan, a renowned Japanese automobile company.
One of the biggest trends for institutional investors is investing in alternative financial instruments like cryptocurrencies and Bitcoin ETFs. However, while the rest of the world is adopting Bitcoin ETFs into stock exchanges, Japan has yet to approve their use.
Government Bonds
Although Japan has massive government debt, investors are still buying Japanese government bonds, popularly known as JGBs. Seven Japanese government bonds have a duration of 3 months to 30 years. Bond yields aren’t high, ranging from 0.37% to 2.27%, but the low risk associated with them makes them an attractive investment for investors with a low-risk profile.
REITs
Real estate investment trusts (REITs) allow investors, at home and abroad, to own real estate without physically managing any property. Investors are trooping into REITs because of the tax benefits and opportunities it offers as a hedge against inflation. REITs are part of the highest-paying dividend instruments in the stock market. Popular Japanese REITs include Japan Real Estate, Nippon Building, Japan Metropolitan, Japan Prime Realty, and Fukuoka REIT.
Japan’s Market: A Positive Outlook for Investors
Investment preferences in Japan range from currencies, stocks, indices, and government bonds to real estate funds. Aside from directly investing in Japanese markets, investors can invest indirectly in Japan by buying shares of companies that invest in the country. Overall, Japan’s economic outlook reveals a positive moment for investors to find earning opportunities there.