In 2024, the Japan stock market is expected to undergo a significant shift.
japan stock market
Goldman Sachs Research predicts that strong global economic growth and stock market reform would drive a second surge in the Japanese equity market in 2024.
By the end of 2024, the TOPIX, an indicator of Japanese stocks, is expected to have increased by around 13% to 2650. Our economists predict that most economies, including Japan’s, will continue to excel in terms of growth in 2024. The country’s real (inflation adjusted) GDP growth is predicted to increase by 1.5%, as opposed to the 1% predicted by the Bloomberg survey of economists.
The Tokyo Stock Exchange’s corporate governance measures, which they claim “have been a game changer for the Japanese equities market,” are a significant component of our experts’ prediction. Listed firms are encouraged by the stock exchange to increase their values and profitability; if they are unable to demonstrate that they are making effective use of their money, they may be delisted. Investors see the winding down of cross-shareholdings, or shares that companies possess in their business partners in order to preserve those links, as a sign of better governance.
Goldman Sachs Research analysts Bruce Kirk and Kazunori Tatebe wrote in the team’s study that “continued TSE pressure on corporates to respond to its requests will lead to a further.
As of Nov. 10, the TOPIX had increased by 24% in local currency, marking its fourth-best annual performance since 2001. The US stock S&P 500 Index and the Hang Seng Index of Hong Kong have both underperformed the Japanese benchmark by a considerable margin. Yet, TOPIX is still underperforming the S&P 500 in US dollars, which may account for why dollar-based investors have been hesitant to raise their Japan weightings this year, according Goldman Sachs Research.
Foreign capital has flooded into japan stock market.
Amidst anticipations of stock market reforms, foreign fund investment flows into Japanese stocks experienced a significant surge from April to June.
From April to June, the Japanese stock market had ten weeks in a row of net foreign purchases of cash and futures, amounting to a total of 7.9 trillion yen ($53 billion). According to Goldman Sachs Research, the TSE-related investor interest and the favorable effect of Warren Buffett’s April interview with Nikkei Asia about Japanese equities drove the stock purchases. Although international flows have been favorable for the year, foreign investors have been selling Japanese stocks on net in recent months.
It is anticipated that foreign investors and businesses will continue to be net buyers of Japanese stocks, but domestic individual investors would start buying more of them in 2024 as a result of the upcoming January launch of the Nippon Individual Savings Account (NISA), a program designed for small investments.
Kirk and Tatebe believe that the introduction of the expanded “new NISA” in January 2024 will encourage people to invest in the stock market, given that Japanese families are now experiencing a substantial decrease in real returns on bank deposits as a result of high inflation.
Japan’s economic forecast for 2024
Kirk and Tatebe argue that in addition to governance improvements, this year’s gains in the Japanese stock market have also been fueled by expectations that the Bank of Japan will abandon its ultra-loose monetary policy and by a favorable currency tailwind for Japanese exporters.
The real GDP growth in Japan is predicted by our economists to drop to 1.5% in 2024 from 1.9% in 2023, when the economy benefited from the lifting of COVID limitations. They predict that growth will continue at a rate higher than its potential (their long-term outlook is 0.9%). It is anticipated that private consumption would increase in the summer of 2024 thanks to a one-time tax rebate and salary increases. In 2024, goods exports are expected to rise slightly, while inbound tourism will probably resume a small rebound following this year’s post-pandemic spike.
Following years of persistent deflation, a raft of massive fiscal and monetary policy measures to stimulate the economy resulted in a spike in inflation in 2023. The core CPI, which does not include fresh food, is predicted by our economists to stay over 2% in 2024. They anticipate that once policymakers have verified a positive cycle of rising wages and service prices (though it is unclear when this cycle can be verified), wage growth will eventually lead to a tightening of Japan’s extraordinary monetary easing and the end of the Bank of Japan’s negative interest rate policy.
Earnings for Japanese companies are expected to increase.
Kirk and Tatebe state that “Japanese companies’ earnings momentum remains strong.” They predict that TOPIX profits per share will increase by 12% in 2023, 8% in 2024, and 7% in 2025. It is anticipated that industries rebounding from cyclical downturns, such as manufacturing, electrical appliances, raw materials and chemicals, and technology and communication, will drive growth in the upcoming year.
