Why Japan stocks up to a New High? Can we add Japan stocks right now?

Since the beginning of 2023, Japanese stock market has outperformed the U.S. stock market.

According to Dow Jones Market Data, the TOPIX index, Japan's benchmark index, rose 0.3% on Wednesday, May 17, to reach 2,133.61 points, marking the highest closing level since August 3, 1990.

As of Wednesday, the Nikkei 225 index has risen more than 20% year-to-date, surpassing the 8.81% gain of the $S&P 500(.SPX)$ . The largest ETF tracking Japanese stocks, iShares MSCI Japan (WJ), has also risen 11.8% as of Wednesday.

data from tradingview

Why does Japanese stock market hit a 33-year high?

1) Dividend payments and share buybacks reached a record high of $71.4 billion

Japan has been promoting corporate governance reform for many years, including strengthening corporate governance standards and encouraging companies to return cash to shareholders.

Japanese companies have significantly increased dividend payments, and the amount of share buybacks has also reached a record high.

In the year ending in March, Japanese companies' share buybacks amounted to a record-breaking $71.4 billion. This indicates that Japanese companies are more proactive in returning value to shareholders, providing opportunities for investors to earn returns and capital appreciation.

2) High net cash ratio of companies

Japanese companies have a higher proportion of net cash on their balance sheets compared to U.S. companies.

Nearly 50% of Japanese companies have net cash on their balance sheets, while the proportion for U.S. companies is just over 20%.

About 54% of the component stocks of the TOPIX index have stock prices lower than their book values, whereas the proportion for the S&P 500 index is only 7%.

3) Safe-haven demand due to debt-ceiling crisis

Some investors may see the Japanese stock market as a safe-haven asset, especially against the backdrop of concerns about the U.S. debt ceiling. This safe-haven demand can lead to capital inflows into the Japanese stock market, supporting its rise.

4) Buffett's added Japanese stocks

Renowned investor Warren Buffett has increased his holdings in five Japanese trading companies, injecting upward momentum into the Japanese stock market and boosting investor confidence.

Can we add Japanese stocks after it hit a new high?

Analysts believe that Japanese stocks still have enough momentum to further expand their lead.

Compared to U.S. tech stocks, Japanese stocks have much lower volatility and can still provide returns for investors, making them an attractive option.

Despite the Nikkei index reaching historic highs, Japanese stocks still appear relatively cheap in terms of valuation. With a price-to-book ratio of only 1.3 times, compared to the 4 times of the S&P 500 index and 1.8 times of the STOXX Europe 600 index, Japanese stocks have relatively lower valuations.

What Japan equities to choose?

$Xtrackers MSCI Japan Hedged Equity ETF(DBJP)$ $WisdomTree Japan Hedged Equity Fund(DXJ)$ $JPMorgan BetaBuilders Japan ETF(BBJP)$ $iShares MSCI Japan ETF(EWJ)$ $Franklin FTSE Japan ETF(FLJP)$ $iShares MSCI Japan ETF(EWJ)$

Will you add Japan stocks like Buffett?

What's your target in Japan stocks?

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