Since the 1990s, Japan has mostly been on the bad list for investors. Numerous government corruption scandals, poor fiscal management, and various economic challenges have made it a dicey proposition. Some experts believe that is changing. Nellie S. Huang summarizes some of the latest developments due in part to the new prime minister, Shinzo Abe, and his push for major economic reform (“Japan’s Rebound Is for Real” Kiplinger’s Personal Finance, June 2013, pp. 34–36):
“For investors, the outcome of a July parliamentary election is key, for it will determine how much the Diet, Japan’s legislature, supports Abe’s policies. Some positive changes are already afoot. After a decade of almost no wage increases, several big companies, including Toyota Motor and convenience-store operator Lawson, announced bigger bonuses in early 2013. ‘It’s not huge, but it’s change, and that’s affecting the psyche of the Japanese consumer, which to me is big,’ says Taizo Ishida, co-manager of Matthews Japan fund. Indeed, both consumer and corporate confidence are on the rise. And Abe’s approval ratings are high, which suggests that he’s likely to stay put, at least for now.” (p. 35)
Japanese companies have been making some smart moves as they strategize for a more prosperous future. This in turn seems to be warming investor sentiment stateside:
“Corporate Japan is on surer footing these days. Companies have spent the past decade cutting costs, moving production centers to lower-cost countries in Southeast Asia, and repairing their balance sheets. . . . Some big-name U.S. firms are urging their clients to buy Japan. Earlier this year, Morgan Stanley Wealth Management lifted its recommended allocation to Japanese stocks from zero to 5%.” (pp. 35–36)
Fundamentals are always important in investing. Market sentiment is a significant factor too. Perhaps, between the two, Japan will finally move into a new period of stock market prosperity.