In recent years, when the Japanese economy is mentioned, people's impression is of a state that is half-dead and not alive. Since the bursting of the economic bubble in the late 1980s and early 1990s, Japan has almost become a negative textbook for the whole world. However, imperceptibly, 30 years have passed, and the Japanese stock market has inadvertently set a new high. What exactly is going on? Is the Japanese economy about to make a strong comeback?

On May 19th, the Nikkei 225 index closed at a high point not seen since 1990, and at one point during the trading day, it even surged to 30,924.57 points. The last time the Nikkei 225 index reached over 30,000 points was just after the dissolution of the Soviet Union. As everyone knows, after entering the 1990s, the Japanese economy has been in a slump, and it is internationally recognized as a country that has fallen into deflation as a whole. Even some small countries can point out the fate of Japan, which was the world's second-largest economy at the time, as if they were more powerful than Japan.

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From then on, the Japanese stock market became an international orphan, and all kinds of capital were unwilling to touch it. Entering it was like falling into a bottomless pit, with continuous declines. If you want the Japanese stock market to rise, you will have to wait until your hair turns white. Therefore, for a long time, not many people in the international community paid attention to the Japanese stock market. However, recently, the Japanese stock market has been surprisingly good, and it has suddenly stood at a 33-year high. The reasons for this are intriguing.

Undoubtedly, under the guidance of Abenomics, the Japanese economy has indeed shown some positive signs in recent years. After Fumio Kishida was elected as the prime minister, he introduced favorable economic policies. Japan, which has been in long-term deflation, now has a CPI increase of 3.5%, and the GDP growth rate of Japan in 2022 was 1.1%, which has achieved positive growth for two consecutive years.

So, although the Japanese economy has improved, the economic growth rate of 1.1% is far from supporting the stock market to set a new high. The real reason is not how good the Japanese economy is, but the influx of a large amount of capital, leading to a capital-driven rise in the stock market. Why is capital flowing into Japan in large amounts? The reasons are multifaceted.

On the one hand, the recent economic situation in the United States is not very good, and two major events have caused headaches for the United States. One is the U.S. debt crisis. The deadline for default is approaching, but the two parties have not yet reached an agreement. For decades, the United States has never been so close to a sovereign debt crisis. If the United States defaults on its debt, the impact on the global financial market will be huge, because U.S. debt has always been considered one of the safest financial assets. If U.S. debt can default, traditional financial theories will have to be rewritten, many investment strategies will have to be rearranged, and global capital will have to be reallocated. Another major event is the successive bank failures in the United States and Europe, which has led many people to seriously question the safety of the U.S. financial system.

On the other hand, there is no sign of the Russia-Ukraine war stopping in the short term, and the possibility of further risk spillover is very high.

These two reasons have led to the spread of global risk aversion, and everyone is looking for safer assets. Now that even U.S. debt has the risk of blowing up, U.S. assets cannot be touched in the short term, so Japanese assets have successfully attracted the attention of all kinds of capital.

In fact, Japanese assets have long been considered safe-haven assets internationally because they have smaller fluctuations, and Japan's financial system is relatively sound. Therefore, it is reasonable for capital to choose to enter the Japanese stock market in the face of increased uncertainty.

Warren Buffett, the stock god, once again demonstrated his magical ability to be prescient and foresighted. He started to layout Japan three years ago when the epidemic in Japan was still very serious. At that time, Berkshire Hathaway Inc. bought a large amount of Japanese stocks, and the most purchased were the stocks of Japan's five major trading companies: Marubeni, Itochu, Mitsui & Co., Mitsubishi Corporation, and Sumitomo Corporation.In April and November 2020, Warren Buffett invested a total of $8.4 billion in the stocks of the five major Japanese trading houses in two separate transactions. After three years of strategic positioning, the investments have finally yielded significant returns. The latest financial reports indicate that Buffett has made a substantial profit, and he personally admitted that he has earned more in Japan than in any other region outside the United States. Reports suggest that over the past three years, the stock price of Marubeni Corporation has surged by 200%, while the stock prices of Mitsui & Co. and Mitsubishi Corporation have also increased by over 100%. Buffett's investment of more than $8 billion in Japan has seen a profit margin of at least 150%. No wonder the 92-year-old billionaire was in high spirits when he flew to Japan in April to have tea with the bosses of these five companies.

In the past, the "Buffett Effect" has been a significant influence in the investment world, with many institutions following Buffett's lead. Under the impetus of the Buffett Effect, capital has flooded into the market, which is a key reason for the substantial rise in the Japanese stock market.

In addition to the stock market gains, Japan has received a lot of good news recently. For instance, in May, Fumio Kishida met with the seven global semiconductor giants, including Intel, Micron Technology, and IBM. Some predict that Japan's semiconductor industry could once again achieve its former glory.

Indeed, Japan's semiconductor industry has had a very glorious past, especially during the 1980s and 1990s. At that time, Japan's semiconductor industry accounted for a significant portion of the global market and introduced a series of products that were leading the world, such as DRAMs, processors, and memory devices. At one point, Japan's production of DRAMs exceeded the combined total of the United States and South Korea.

However, as technology continued to advance and market demands changed, especially with the rise of China and other countries, Japan's dominant position began to waver, and its semiconductor industry gradually declined. Now, against the backdrop of multiple restrictions on China's semiconductor industry by Western countries, Japan, with its solid industrial foundation, has become the new darling of the semiconductor world. Semiconductors are considered a sunrise industry of the future, and once developed, they have tremendous potential. Therefore, many people are optimistic about Japan's future economic development.

However, behind these impressive performances, issues such as the uncertainty of Japanese corporate performance and the limited policy space in Japan's economy remain unsolvable. Against the backdrop of the global economic slowdown this year, it is as difficult as climbing to the heavens for Japan's economy to truly get on the fast track.

Even the Japanese stock market, which has reached new highs, is fraught with significant uncertainty. According to statistics, overseas funds account for more than 66% of the Japanese stock market, and a large portion of these funds are speculative. They can quickly enter and exit at the slightest sign of trouble. While these funds have driven up the Japanese stock market, they have also introduced considerable instability to both the market and the Japanese economy.