International investors are flocking to Japan. The country has been experiencing a wave of economic and policy shifts for a while.

Our longtime subscribers are familiar with this story. Investors really started paying attention when the Bank of Japan (“BoJ”) raised interest rates from below zero back in August. 

That’s also when the “yen carry trade” started to unwind.

Last month, Circle K parent company Alimentation Couche-Tard (ATD.TO) made a play for Seven & i (3382.T), the Japanese owner of 7-Eleven. We wrote at the time that this could be the first of a new wave of deals in Japanese companies.

We were proven right in no time with important hedge-fund players like Brevan Howard, Millenium, and Capula strengthening their Japan-focused trading teams.

Clearly, these firms want in on the fun and they’re likely only the start…

In the 1990s, Japan’s economy went through a period known as the ‘Lost Decade’.

It was a time marked by prolonged economic stagnation and deflation—after the collapse of a major asset bubble.

Companies were left with a lot of debt, which banks had a hard time collecting. The BoJ slashed interest rates to stimulate growth. But the economy kept on struggling.

Rates have stayed below zero since 2016 to combat the slowdown. But it all changed in August when the BoJ raised the target rate to 0.25%.

That was probably the most shocking news for Japan recently. It wasn’t the most important, though. That honor goes to the country’s earnings ramp-up, made possible by Hiromi Yamaji, chief operating officer of Japan’s Exchange Group.

Under Yamaji’s leadership, Japanese corporate culture has undergone a massive transformation. The country is expecting another year of near-record-high earnings in 2024.

As we predicted, under Yamaji’s reforms, Seven & i was the first in a wave of merger and acquisition (M&A) news.

Japanese semiconductor giant Renesas Electronics (RNECF) bought a U.S. software business called Altium for nearly $9 billion.

All these changes indicate a hope of recovery from the lost decades since the 1990s and show Japan’s efforts to become relevant in global finance once again.

And we’re seeing all these changes reflected in the stock prices of Japanese companies.

The Nikkei 225 Index, Japan’s major stock index, underwent a huge consolidation period for the past 35 years. Now, it has climbed to levels last seen in 1990.

Take a look…

The Nikkei’s turnaround was only possible thanks to a serious correction to how Japanese companies think about governance.

While it’s still too early to know for sure, it seems like the world’s fourth-biggest economy has finally started to turn around.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

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