Japan's stock market has shown signs of life, with a 20% increase this year, driven by significant changes in corporate governance and capital allocation strategies [f878e924]. The government and stock market are focusing on improving corporate governance, pushing companies to enhance their share prices and valuations [f878e924]. The Tokyo Stock Exchange (TSE) plans to publish a list of companies that are making efforts to improve performance and governance, aiming to increase transparency and help investors make informed decisions [4a92ed37]. This initiative is part of a broader effort to reorient Japan's capitalism model to benefit shareholders and everyday citizens [f878e924].
In recent developments, the MSCI Japan Index posted an annualized return of 9.17% for the decade ending November 2024, and delivered a 12.49% return year-to-date [f5d39608]. However, the index experienced a significant drop of 12.48% on August 5, 2024, due to Bank of Japan interest rate hikes and weak U.S. economic data [f5d39608]. Despite this volatility, Japanese equities have shown resilience, indicating that corporate fundamentals are crucial for investment returns [f5d39608].
The TSE has announced that about 40% of companies on its prime section have met the bourse's voluntary request to develop business plans aimed at improving capital efficiency [96a2b755]. Companies such as Sony Group Corp. and Hitachi Ltd. are among those on the list, while corporate giants like Toyota Motor Corp. and SoftBank Group Corp. have yet to deliver [96a2b755]. The directive, effective from April 2024, covers all companies except those listed in the Growth market [96a2b755].
The recent emphasis on corporate governance reforms, mandated in 2021, has led to better capital allocation practices among Japanese firms [f5d39608]. The MSCI Japan Index's price-to-earnings ratio was about 15.1x in December 2024, reflecting a growing focus on shareholder value [f5d39608]. Earnings growth is projected to be in the high single digits, with dividends and share buybacks increasing by double digits [f5d39608].
In other news, a recent employment lawsuit involving Citibank and a sandwich expense scandal highlights the pettiness of corporate disputes [f878e924]. Blackstone's president, Jonathan Gray, stated that the company is increasing investment in Japan due to a 'rebirth of dynamism' in the country's economy, with plans to invest 1.5 trillion yen ($9.6 billion) over the next three years [544162d5].
Masaki Taketsume, fund manager of Japan Trust at Schroders, discusses the outlook for the Japanese stock market, emphasizing that improvements in corporate governance have led to better profits for companies. He highlights the importance of identifying companies that can set their own prices, such as Chori, which is improving its balance sheet [cdcf0f2a]. Taketsume predicts a bright future for Japanese stocks due to inflation and ongoing governance improvements [cdcf0f2a].
Overall, the combination of governance reforms, capital deployment strategies, and a focus on corporate performance is expected to drive increasing shareholder value for Japanese equities, even as the economy is projected to grow at a modest 0.3% in 2025 [f5d39608].