On March 4, the Nikkei 225 index opened with a gap and broke through the 40,000-point mark for the first time in history.
Japan's boom has attracted an influx of international capital, making it one of the best-performing markets in the world over the past year. According to data compiled by most institutions, around 10 trillion yen of money could return to Japan this year**, potentially pushing the Topix index, which covers a broader range of Japan** targets, to a record high this year. Especially after Warren Buffett expressed optimism last year, Japan** continued to attract international capital inflows.
On February 24, Warren Buffett's Berkshire Hathaway announced its latest earnings report and released its annual letter to shareholders, in which it talked about Japanese companies at length and said that Berkshire would maintain its investment in five Japanese trading companies indefinitely. In the shareholder letter, Buffett revealed that Berkshire holds about 9% of the shares of the five major trading companies. At the same time, he said Berkshire promised each company that it would not buy more than 99% of the shares. From the first trading day of 2023 to February 20, 2024, in more than a year, the stock prices of Japan's five major trading companies have been in the red: Mitsubishi Corporation**12731%, Mitsui & Co.**7118%, Sumitomo Corporation**6997%, Marubeni**6918%, ITOCHU Corporation**6422%, Buffett once again made a lot of money. On March 4, Goldman Sachs raised Japan's Topix Index to 2,900 for the next 12 months** from 2,650 to reflect strong earnings growth and valuation expansion expectations for Japanese listed companies.
On the one hand, there is the expectation of earnings growth of listed companies; On the other hand, as the yen is once again close to its all-time low against the dollar, Japanese assets and consumption** have become cheaper and more attractive in the international market, and many funds from around the world have invested in Japanese companies.
After a "lost 30 years", Japan is now poised to spend $67 billion to attract the world's advanced semiconductor companies. Japan** plans to increase domestic chip sales to more than 15 trillion yen by 2030. At the same time, Japan launched the Rapidus project, which plans to mass-produce state-of-the-art 2-nanometer chips in 2027. Japan's ** subsidies for the chip industry have attracted many top overseas chip manufacturers to invest in Japan, and the American semiconductor startup Tenstorrent announced on February 27 that it will help Japan design artificial intelligence chips; TSMC's Kumamoto plant has been put into operation a few days ago, and TSMC plans to build a second factory in Japan. According to industry insiders, the scale of investment by overseas semiconductor companies in Japan has been unprecedented.
In October last year, Nomura launched a private M&A** for wealthy investors in Japan as part of its strategy to expand beyond traditional asset markets. Nomura**, Senior Managing Director in charge of retail products, said, "I believe that by 2025, the potential demand for private assets by Japanese individuals alone will reach about 13 trillion yen." In July, a consortium of Singapore's SC Capital Partners, a subsidiary of the Abu Dhabi Investment Authority (ADIA), and Goldman Sachs Asset Management, said in a statement that it had spent about $900 million to acquire 27 hotels in Japan. These hotels include 7,124 rooms in Japan's major tourist destinations.
This series of international funds investing in the Japanese market is based on the expectation that the Japanese economy will come out of the "lost 30 years". Jesper Cole, who was the chief economist of Bank of Merrill Lynch and JPMorgan Chase in Japan, said a few days ago that the "animal spirit" of Japanese companies has awakened, and it is this spirit that promotes the improvement of corporate performance. The next generation of CEOs and management of Japanese companies is also taking action, and domestic business investment, mergers and acquisitions, and management buyouts (MBOs) are now at record levels. For the first time in 30 years, corporate leadership is taking real action to try to create a better future, and it can be said that Japanese corporate culture is undergoing a dramatic change. For example, telecommunications giant Nippon Telecom** (NTT) is an established company, but it has recently adopted a pay-for-performance system, breaking with the traditional merit-based system of lifetime employment.
However, there is also an opinion that after the global coronavirus, most countries raised interest rates sharply, but the Bank of Japan did not raise interest rates, so the yen exchange rate depreciated sharply. For foreign investors, Japanese assets suddenly became very cheap, and a lot of money poured into Japan, especially **. But the Japanese economy itself has not changed much, and the inflow of overseas money has only made the Japanese economy look good to some extent.
The influx of international capital and Japan's declining birthrate led to a significant increase in inflation due to labor shortages and higher wages and wages, which led to a larger-than-expected inflation rate in January, and the consumer ** index, which excludes fresh food, was **2% year-on-year. This is the 22nd consecutive month that inflation has reached or exceeded the BOJ's target. The country's labor market remained tight that month, leading companies to promise significant wage increases in annual wage negotiations with unions, with wages in their twenties and thirties likely to increase between 5 and 7 percent.
As the inflation rate exceeded expectations, Japan's first day publicly stated in its monthly economic report that the Japanese economy has shaken off deflation and is considering announcing the official end of deflation. This means that the Bank of Japan is signaling that it will consider exiting the negative interest rate policy that has been in place since 2007 and starting to normalize monetary policy. The International Monetary Fund (IMF) noted that once the negative interest rate policy ends, the Bank of Japan may gradually raise interest rates and tighten monetary policy, which could lead to a decline in domestic liquidity. In view of Japan's long-term negative interest rate policy, many institutions have borrowed yen to invest in international financial markets, and if the Bank of Japan raises interest rates, it will have a non-negligible impact on global financial markets.
Reporter Lu Hong.