Why is the Japanese stock market so hot recently? Is the economy genuinely improving or is it just a temporary surge?

Japanese Stock MarketEconomic Recoverymarket surgeinvestment trendseconomic indicators
Created At: 8/8/2025Updated At: 8/18/2025
Answer (1)

Okay, no problem. Let me break down why the Japanese stock market has been so hot lately, and I'll try to keep it simple and easy to understand.

Why is the Japanese Stock Market So "Bullish" Lately? Real Strength or Just Hype?

Hey, that's a great question. I've definitely noticed more people talking about Japanese stocks recently. The Nikkei index broke through its 34-year high, like a sleeping giant suddenly waking up.

To understand this surge, I don't think you can point to just one thing. It's more like a combination punch. Simply put, several "engines" fired up at the same time.

Simply put, this surge is the result of several "engines" firing up together:

  • 1. Warren Buffett's "Endorsement" Effect

    • This starts with the "Oracle of Omaha" himself. He started quietly buying into Japan's five major trading houses (think massive conglomerates) a couple of years ago and publicly stated, "I will continue to buy."
    • Think about Buffett's status in the global investment world. He's a "walking barometer." When he makes a move, investment institutions and retail investors worldwide start thinking, "If the 'Stock God' is bullish on Japan, there must be something valuable we're missing!" This instantly drew global attention and hot money flows.

  • 2. The Yen's "Big Easing": So Cheap Foreigners Want to "Stock Up"

    • This is one of the core reasons. The yen has depreciated significantly lately, falling sharply against the US dollar and the Chinese yuan.
    • An analogy: Take a stock priced at 10,000 yen.
      • When the yen was strong, a US investor might have needed $100 to buy it.
      • Now, with the yen weak, they might only need $70.
    • For investors holding foreign currencies, the entire Japanese stock market feels like it's on "discount sale," significantly lowering their buying costs.
    • Moreover, a weak yen is a huge boon for major Japanese companies. Firms like Toyota, Sony, and Nintendo sell most of their products overseas, earning dollars and euros. When they convert that foreign currency back to yen for their financial reports, their profit figures look much more impressive. Higher company profits naturally push stock prices up.

  • 3. Moving Past "Three Lost Decades"? The Japanese Economy Seems to Be "Perking Up"

    • Japan had a persistent problem called "deflation." Simply put, prices stagnated or even fell for years. People felt their money was becoming more valuable, so they were reluctant to spend or invest, leaving the economy sluggish.
    • Now, things are changing. With global inflation, Japan has finally emerged from deflation, and prices are starting to rise. This is actually stimulating consumption. Crucially, many large companies have started raising employee wages – something rare for decades. With more money and willingness to spend, the economy's "internal circulation" is slowly starting to turn.

  • 4. Companies Themselves Are "Wising Up," Focusing on Shareholder Happiness

    • Japanese companies used to have a bad habit: hoarding cash. They sat on huge piles of money without distributing it to shareholders or investing it, making their stocks less attractive (this is called a "value trap").
    • Now, the Tokyo Stock Exchange is leading reforms, constantly "prodding" listed companies to improve shareholder returns – for example, by increasing dividends and buying back their own shares. When companies buy back shares, the number available decreases, making the price easier to push up. Increasing dividends means shareholders get more cash in hand, making them more willing to hold the stock.

So, is this real economic improvement, or just a temporary buzz?

This is the crucial question. Personally, I think it's the result of both "improved fundamentals" and "short-term speculative money chasing the trend."

  • The Optimists' View (Believing it's real strength):

    • They argue that Japan emerging from deflation, companies raising wages, and corporate governance reforms are structural, long-term changes. This isn't a passing fad; the economy's underlying health is genuinely improving. The "foundation" of the Japanese stock market is much stronger than before.

  • The Cautious Concerns (Seeing it as a temporary surge):

    • They contend that the current rally is largely fueled by the "weak yen" acting like a stimulant. If the US starts cutting interest rates and the yen strengthens, the profit advantage for export companies disappears. Foreign capital could then take profits, potentially causing the market to reverse.
    • Moreover, fundamental problems like Japan's aging population and high government debt haven't been resolved.

My Personal Take:

Think of the current Japanese stock market like someone who's been sick for a long time. They recently took a few "booster shots" (the weak yen, Buffett's endorsement) and suddenly got a burst of energy, even running a marathon and breaking a record.

At the same time, they are exercising and improving their diet (economic structural reforms), so their underlying physical condition is genuinely better than before.

Therefore, this hot market performance combines both the short-term excitement from the "booster shots" and the real, underlying improvement from the "exercise."

The future trajectory largely depends on whether they keep up the exercise and build real strength, or whether they slump back down once the effects of the boosters wear off. For the average investor, jumping in now might feel like chasing the rally. But looking long-term, there have been some noteworthy positive changes in the Japanese economy and market. You could say the foundation is more solid than before, but the waters won't necessarily be calm.

Created At: 08-08 21:41:50Updated At: 08-10 02:18:25