Capital Group | The winds of change are blowing in Japan. Corporate reform, wage growth and the digital revolution are ending decades of deflation and driving the market to highs not seen since 1989. Policymakers are urging companies to put shareholders first, and the government has created a digital agency to close the innovation gap with other countries.
Digitalisation is a key issue to overcome demographic problems and boost productivity. This approach is boosting demand for the products of certain companies, such as software solutions company OBIC and distance learning specialist JustSystems.
Moreover, the low cost of doing business in Japan is attracting foreign direct investment. The semiconductor sector continues to rebound in Japan: although it does not offer advanced manufacturers or global foundries, companies such as Tokyo Electron manufacture materials that are essential to the supply chain. Meanwhile, some international companies are setting up factories in Japan, such as TSMC’s Kumamoto plant.
The return of capital spending and foreign direct investment is a reflationary factor. The recent opening of TSMC’s Kumamoto plant has been considered a success due to the availability of engineering resources, while the Arizona opening has faced very high costs, including for engineers. This context could boost foreign direct investment in Japan.
Past performance does not guarantee future performance. Left axis: Source: Capital Group, MSCI, RIMES Cumulative return on price from 31 December 1980 to 31 May 2024. Results are shown in Japanese yen. Cumulative return is the total variation in the price of the investment over a given time. Right: Source: Capital Group.
