Japanese Stocks

Business and Politics

Japan is the third largest economy in the world. The Japanese economy has grown significantly in the last century. With a lot of capitalism, diligence, and innovative power, Japan managed to catch up with the USA and went from an emerging country to a global power. However, Japan is not as well-known or popular among German investors.

Why is this the case and why does Japan have a lot to catch up on? The Japan Crash in 1986 and the continuous crisis state since 1990 are the cause. 1986 marked the beginning of a period that would heavily burden Japan thereafter.

Japanese as well as foreign investors saw a lot of potential in the Japanese market and began buying all assets there. A huge bubble of assets emerged. Ordinary companies were traded with P/E ratios of 100 and higher. The Nikkei 225 rose to a level of almost 39,000 points. This bubble was able to sustain itself for five years.

In 1992, there was a major crash in Japan and a lot of investor funds were lost. After initially strong economic growth, Japan fell into a very long stagnation. A prolonged low production growth began. The society became older and salaries in Japan barely increased.

Japan today

Today, Japan is a different country. Shinzo Abe of the LDP becomes the Prime Minister of Japan in 2012. He introduces the so-called "Abenomics" as an economic program. Under his government, Japan manages to grow again. Consumption increases. Important job positions can be filled again. A new era begins for Japan.

Prime Minister Shinzo Abe has thus embarked on a new economic path to dare more capitalism. Bringing the elderly population back into the labor market and increasing human capital. Japan is also developing technologically. In the past, Japan was already known for industry and technology. Today, Japan wants to return to its former glory. It is investing, among other things, in robots, renewable energy, and hydrogen.

Japan is a liberal market economy that is partially state-directed. Compared to Germany, taxes are lower and laws regarding employees are less strict. In September 2020, Abe retired. Although he was in office for only eight years, it was the longest time a prime minister in Japan has ever led the people.

His successor is Yoshihide Suga. He has announced that he does not want to break with Abe's policies. The fear in politics runs deep that the fragile growth of Japanese politics could be ended again. The Japanese people have suffered for too long under the poor economic situation. However, the lack of labor has led Japan to become a stronghold for industrial robots, and Japan's automakers are focusing on hydrogen mobility as an innovative solution to climate change.

The largest companies

Itochu, SoftBank, Nintendo, and Sony are the well-known major companies in Japan. Itochu is an independent company and is currently one of the largest trading companies in the world. It focuses on the following segments: food, mechanical engineering, energy & chemicals, as well as activities related to metals, commodities, textiles, and real estate.

SoftBank is the largest startup investor in the world. They invest in startup business models that have been established on the market for many years, but still have enormous potential for growth. SoftBank invests as a classic "venture capitalist" relatively late in the startup phase.

Nintendo is perhaps the most well-known gaming company in the world. And one of the very few that has truly stood the test of time for many decades. Similar to Disney, Nintendo has managed to create characters and brands that shape our entire human culture: Super Mario, Donkey Kong, Legend of Zelda, Animal Crossing, Super Smash Bros, and of course, Pokemon. The medium is almost irrelevant: playing cards, Gameboy, Wii, Nintendo DS, Nintendo Switch, or an app (Pokemon GO).

Sony is the largest electronics conglomerate in Japan and a true powerhouse in the electronics market. Sony manufactures electronic products such as cameras, televisions, and smartphones, and also has a significant financial business, a music publishing division, and is one of the largest gaming companies in the world. Sony's Playstation is known to everyone around the world.

The largest and most important trading venues

The Tokyo Stock Exchange. It is the largest stock exchange in Japan and the third-largest stock exchange in the world in terms of the market capitalization of the stocks listed there (after the New York Stock Exchange and NASDAQ).

The Osaka Exchange is the second largest stock exchange in Japan. Here, mainly derivatives such as futures and options are traded. The second largest stock exchange for equities is the Nagoya Stock Exchange. However, trading in Japan is predominantly focused on the Tokyo Stock Exchange.

Price development of the indices

The Nikkei 225 is the most well-known index from Japan. It is mostly treated as the leading index in Japan. Its calculation is based on weighting the individual stocks in the index by their price, rather than market capitalization. This means that the higher the price, the more it contributes to the index's performance.

This weighting method is nowadays quite uncommon, which is why the Nikkei index is criticized for not accurately representing the Japanese economy. The Japanese benchmark index Nikkei has also struggled to generate significant returns in the long term even after the Japanese crisis. Currently, the index stands at over 27,000 points.

The Topix Index is issued by the Tokyo Stock Exchange and is considered a major competitor to the Nikkei. It measures the performance of over 2,000 companies and is weighted by market capitalization. As a result, it represents the Japanese economy significantly better.

Trading hours in Japan

The stock trading in Japan runs for a relatively short period. Trading takes place between 9:00 am and 3:00 pm with a lunch break of one hour. Therefore, trading takes place between 1:00 am and 7:00 am CET.