IN FOCUS6-8 min read

Back in vogue: Japan’s stock market renaissance

Japan’s stock market has boomed over the past year and, after 34 years, has finally regained its 1989 peak. Even after the dramatic improvement in performance, Japanese shares still look attractive.

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Caspar Rock
Chief Investment Officer

The last time Japan’s stock market was at current levels, in December 1989, the dust was still settling from the fall of the Berlin Wall and Billy Joel was topping the US charts. Over the following twenty-five years, Japan was one of the world’s weaker stock markets, until its fortunes started to rebound with the reforms of late prime minister Shinzo Abe. Continued improvement in the economic outlook led to another significant rally in 2023: the Nikkei index has risen by more than 40% over the past year, finally taking it back above its 1989 peak.


Past performance is not a guide to future performance and may not be repeated.

Looking at other developed markets over the past 34 years, the S&P 500 has risen 14-fold and the EURO STOXX 50 four-fold, while Japanese corporate profits have roughly tripled. So a new high for the Nikkei 225 may not seem all that special. However, the 1989 peak symbolizes the start of Japan’s “lost three decades” and gives the new high more significance.

Japanese equities are now a key holding in Cazenove Capital portfolios, following our decision last year to allocate more to the country than suggested by its weighting in global equity markets. As is often the case, the strong performance of Japan’s equity market has been accompanied by a weakening of the yen. This means that UK investors have given up some of the returns enjoyed by Japanese investors, but even after adjusting for currency moves Japanese stocks are still up by an impressive 22% over the past year.

Market memories

The Nikkei’s revival brings back many memories for me, as it will for other market veterans. There was incredible excitement about Japan back then. Sushi and sake were great novelties and friends started learning Japanese, which was increasingly regarded as the language of the future. Popular books and films were filled with references to Japan’s growing influence – such as the (fictional) Nakatomi Plaza in the Christmas classic Die Hard.

This cultural fascination had its roots in Japan’s very real economic boom of the 1980s. At the end of the decade, the Imperial Palace and its grounds were worth more than the whole state of California because Tokyo real estate was so phenomenally expensive. The stock market was valued at an eye-watering price to earnings ratio of 60 and Japanese companies were buying up trophy assets in the US, including the film studio Columbia Pictures and New York’s Rockefeller Center.

For a brief time, the Japanese stock market made up 50% of the value of global shares and 15 of the 20 most valuable companies in the world were Japanese.

After the boom came a savage bust in the 1990s. This was followed by years of sluggish economic growth and the relative importance of Japan’s markets dwindled. Even after the rally of the past year, Japanese shares still only account for around 6% of global equity market capitalisation.

We remain optimistic. After decades of flirting with deflation, Japan is now experiencing a more “healthy” level of inflation. Corporate managers are welcoming the end of deflation as marking the start of a more positive economic cycle and are committing to achieving further growth. It also encourages consumers to spend. Japanese companies have significant cash on their balance sheets, which they are increasingly using to boost returns, either by investing or returning capital to shareholders. And unlike in 1989, valuations today look very reasonable, with the market trading at a price to earnings multiple of around 15.


The idea of “deglobalisation” is an important one in our current thinking about the global economy. It describes rising geopolitical tension between countries and regions, but also the increasing divergence in their economic performance. Today, we are seeing stronger growth in Japan and the US, and weaker growth in the UK, Europe and China. A quick survey of global markets shows that while Japan is joining the US in making record highs, many other markets, such as China, Spain and Italy, are well below all-time highs – and have been for years. It is a reminder that how we choose to allocate capital between different regions of the world can be a hugely important driver of returns.

Stepping back to look at the big picture suggests that Japan could have more catching-up to do. The US now accounts for around 17% of global GDP, but its stock market represents just over 60% of global equity market value. Japan’s economy was overtaken by China’s some years ago, but it is still third largest in the world and accounts for some 4% of global output. Given the positive tailwinds for its corporate sector, its 6% weighting in global markets feels undemanding and could suggest the strong performance continues.

Issued in the Channel Islands by Cazenove Capital which is part of the Schroders Group and is a trading name of Schroders (C.I.) Limited, licensed and regulated by the Guernsey Financial Services Commission for banking and investment business; and regulated by the Jersey Financial Services Commission. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.



Caspar Rock
Chief Investment Officer


Cazenove Capital is a trading name of Schroders (C.I.) Ltd which is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 2020, Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended and The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022. SCIL is regulated in Guernsey in the conduct of banking, lending and investment business by the Guernsey Financial Services Commission. Registered address at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 3UF, (No.24546) . Schroders (C.I.) Limited, Jersey Branch is regulated by the Jersey Financial Services Commission in the conduct of investment business. Registered address at IFC1, Esplanade, St Helier, Jersey, JE2 3BX, (No.31076).

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