Japan Rediscovered – The fundamental and current changes

Wealth Management and Private Banking

16 November 2023

Global economyGrowthInvestmentsJapanMeeting of MindsvalueWealth Management and Private Banking

Expert: June-Yon Kim, Head of Japanese Equities at Lazard Asset Management Facilitator: Rupert Neville, Project Director


  1. Investment opportunity in Japanese equities - Multiple reasons were highlighted such as reset valuations, competitive currency, improved governance and shift from deflation to inflation that present an opportunity for Japanese stocks going forward.
  2. Overview of Japan's economy - Japan's demographics, with shrinking working age population but increased women's participation and outlook for wage growth and expectations that BOJ policy normalisation from negative rates would be gradual.
  3. Attractiveness for foreign investors - Whether foreign investors will allocate more capital to Japan given strong local returns, but note the currency impact. SMBC research suggests neutral weighting would imply 38% foreign ownership versus current 30-31%.
  4. Role of Bank of Japan policy - Gradual BOJ policy normalization from negative rates, which would be positive for stocks is expected. Suggested first step would be going from -0.10% to 0%, then to slightly positive.
  5. Outlook for domestic consumption stocks - Potential opportunity in domestic consumption stocks to benefit from wage growth and inflation tailwinds, though shrinking population was flagged.
  6. Differences between value and growth - Approach to investing in asymmetric opportunities rather than a rigid value or growth style, highlighting examples of both types of stocks that have done well.
  7. Individual stock discussions - Perspectives on owning various mega-cap Japanese stocks like Sony, Nintendo, Fast Retailing and Softbank, explaining rationale for holding or not holding them.
  8. Attribution of active manager performance - Attributing majority of alpha to single stock selection rather than sector allocation, with financials, value and growth as performance drivers over time.


The content covered multiple conversations between various individuals, likely at an investment conference.

The investment opportunity in Japanese equities - Speakers highlighted Japan's reset valuations, competitive currency, improved corporate governance, and shift from deflationary to inflationary environment as reasons for opportunity.

Overview of Japan's economy - Speakers discussed factors like Japan's aging demographics, women's participation in the workforce, the country's debt profile, and the potential for wage growth.

Attractiveness for foreign investors - Speakers debated whether foreign investors are likely to increase allocations to Japanese equities given strong local returns but currency headwinds.

Role of Bank of Japan policy - Speakers expect gradual normalisation of BOJ policy including a move from negative to positive interest rates, which would be positive for Japanese stocks. 

Outlook for domestic consumption stocks - Speakers see potential opportunity for domestic consumption stocks to benefit from inflation and wage growth tailwinds.

Differences between value and growth investing in Japan - Speakers highlighted how both types of stocks have done well at different times and discuss their approach to investing in asymmetric opportunities 

Key takeaways:

  • Research the long-term outlook for Japanese wage growth as a potential catalyst for inflation
  • Analyse Japanese companies with significant domestic consumer exposure as a potential opportunity
  • Assess the outlook for yen stabilisation against other major currencies and the potential impact on foreign investment flows
  • Model scenarios for a gradual normalisation path for Bank of Japan monetary policy and implications
  • Re-evaluate existing value/growth style biases in light of insights on an asymmetric opportunity approach
  • Consider initiating or increasing position sizes in Japanese financials on normalisation outlook
  • Review governance reforms and analyse corporate leadership sentiment to identify companies embracing shareholder focus
  • Research foreign investor ownership levels by market and model implications of a neutral weighting to Japan