Japanese stocks are gaining traction among investors seeking alternatives to U.S. equities, driven by corporate governance reforms, robust shareholder returns, and a depreciating yen. Since the introduction of the Stewardship and Corporate Governance Codes in 2014, companies have shifted focus from cash-hoarding practices to enhancing shareholder value. This transformation has led to significant increases in share buybacks and dividends, with over 90% of listed firms now featuring independent board members, while the Tokyo Stock Exchange has imposed stricter capital efficiency standards.
The weak yen has further bolstered the appeal of Japanese equities, enhancing the overseas earnings of exporters and attracting record foreign investment. However, risks remain, including potential yen recovery that could pressure exporter margins and higher valuations that may deter new investments. Despite these concerns, the long-term outlook for Japan’s equity market appears promising, with ongoing structural shifts likely to benefit long-term investors.
For those looking to gain exposure, exchange-traded funds like the iShares MSCI Japan ETF (EWJ) and WisdomTree Japan Hedged Equity Fund (DXJ) offer distinct strategies, catering to different investor preferences regarding currency risk and sector focus.
Source: marketbeat.com