Is now the start of a new bull market for Japanese stocks, or is it too late to enter and become a 'bag holder'?

Japanese Stock Market: Is Now the Time to Buy or Are We Catching a Falling Knife?

Friend, you've hit the nail on the head. At investment gatherings these days, eight out of ten conversations revolve around the Japanese stock market. The Nikkei index has surged past its all-time high from the "bubble era," feeling like a giant awakening after a thirty-year slumber. Everyone wants to know: will it keep running forward, or just stretch and go back to sleep?

As for whether entering now is the "start of a bull market" or "buying at the peak," no oracle can give you a definitive answer. But I can break it down for you, laying out the arguments from both the "buy now" and "run away" camps. You can weigh them yourself.

Why Do Some Believe This is the "Start of a New Bull Market"? (Bullish Arguments)

This rally can be understood as reflecting some profound, fundamental changes in Japan, not just speculative hype.

The "Lost Three Decades" May Truly Be Ending
- Deflation Turning to Inflation: For the past thirty years, Japan's biggest problem was deflation. People didn't spend because they thought things would be cheaper tomorrow. Now it's different. Prices are rising, and companies are starting to raise wages. This is a crucial signal that the lifeblood of the economy is starting to flow again. Money needs to circulate for the stock market to have vitality.
- Corporate Governance Reforms: Previously, major Japanese companies hoarded huge cash piles without paying dividends or buying back shares, leaving their stocks stagnant. Now, under pressure from the government and exchanges, these companies are "seeing the light." They are increasing dividends, buying back shares, and paying more attention to shareholder returns. This is tangible good news for investors.
The "Oracle's" Endorsement
- Warren Buffett, the world's most renowned investor, started heavily investing in Japan's five major trading houses several years ago and continues to add to his positions. His logic is simple: these companies are undervalued, offer high dividends, have globally diversified businesses, and are very stable. The Oracle's personal investment has been a massive confidence boost for global investors, attracting significant foreign capital inflows into Japan.
The "Boost" from a Weaker Yen
- The significant depreciation of the yen has been a windfall for Japanese export giants like Toyota and Sony. For example, previously, selling a car in the US for $10,000 brought back ¥1.1 million; now it brings back ¥1.5 million. That's a significant profit increase out of thin air. Better company earnings reports naturally push stock prices higher.

Bullish Summary: This Japanese stock market rally is underpinned by long-term drivers like the economy emerging from deflation, companies prioritizing shareholders, and sustained foreign capital inflows. It might not be a passing fad, but the dawn of a new era.

Why Are Some Worried This is "Buying at the Peak"? (Bearish Arguments)

All investments carry risk, especially when market sentiment is euphoric. Staying calm is crucial.

The Rally Has Been Extremely Fast
- The Nikkei's surge from last year to now is astonishing, reaching record highs. As the saying goes, "The biggest risk is often a big run-up." Short-term gains have created a large pool of profit-taking investors. If sentiment shifts, a sharp correction – a "stampede" – is very possible. Jumping in now could mean buying at a near-term peak.
The Yen's Double-Edged Sword
- While a weaker yen helps exports, what if the Bank of Japan starts raising interest rates and the yen strengthens? The profits previously gained from the favorable exchange rate could be "eaten away in reverse," significantly impacting the earnings of export companies and removing a key pillar supporting the stock market rally. This is a significant potential risk hanging overhead.
The Drag of the Global Economy
- Japan is an export-oriented economy. Its prosperity heavily depends on the global economy, particularly the US and China. If the global economy slips into recession and overseas demand weakens, Japanese companies will struggle. This risk is beyond Japan's control.

Bearish Summary: The market's short-term gains are excessive, raising correction risks; the supportive weak yen factor could reverse at any time; and external global economic uncertainty persists.

So, What Should an Ordinary Investor Do?

My view is: don't approach this with a gambler's mindset, seeing it as purely either the "start" or the "end." Investing is more like a marathon than a sprint.

Don't Go "All In" – Absolutely Not!
- No matter how bullish you are, never bet your entire savings at once. When market sentiment is high, entering the market gradually (dollar-cost averaging) is always the safer choice. This averages your entry cost. Even if you buy at a short-term peak, you'll have capital left to buy more during any subsequent dips, lowering your overall cost basis.
Take a Longer-Term View
- If you're just looking for a quick profit, the current risk is indeed high. But if you believe in the long-term logic of structural change in the Japanese economy and are willing to invest with a 3-5 year (or longer) horizon, then short-term fluctuations become less critical. In the long run, improvements in a country's economic fundamentals will ultimately be reflected in its stock market.
Choose the Right "Vehicle"
- For ordinary investors, researching individual Japanese stocks is too difficult. The simplest, most hassle-free way is to invest through ETFs (Exchange-Traded Funds), such as those tracking the Nikkei 225 Index or the TOPIX (Tokyo Stock Price Index). Buying an ETF means you buy a basket of Japan's most representative companies in one go, effectively diversifying risk and avoiding the danger of a single company "blowing up."

To Summarize

Is it the Start? Given Japan's structural economic changes, it could be the beginning of a long-term bull market.
Is it the Peak? Given the short-term surge and market euphoria, jumping in now carries a real risk of getting caught in a downturn.

My Advice to You:

Maintain "Cautious Optimism." Acknowledge the positive changes in the Japanese market, but also respect the short-term risks. If you decide to invest, be sure to do so with "small amounts, in batches, and for the long term," prioritizing ETFs. This way, you won't miss out on a potential generational opportunity while minimizing the risk of "catching a falling knife."