Why is the Japanese stock market booming again?

Why is the Japanese stock market booming again?
1) Pro-market reforms force companies to improve shareholder returns. Japanese companies have traditionally hoarded cash which increases their book values by provides little actual return. Almost half of companies on the Tokyo Stock Exchange and a price to book ratio below 1.0. The Tokyo Stock Exchange now requires companies wishing to list to boost their P/B above 1.0. This will be accomplished by putting cash to work on stock buybacks and other measures that should improve shareholder returns.
2) Japan’s GDP growth rate exceeds the US and other group of seven. Japan’s GDP growth rate is an annualized 2.7% in Q1 which exceeds economists’ forecasts of 1.9%. The GDP growth is likely driven by inflation. In April, inflation was at 3.5% which is above the Bank of Japan’s target of 2%.
3) Japan should benefit from de-risking of supply chain in Asia. Japan represents a low-risk investment destination. The industrial sector of Japan is uniquely suited to provide construction equipment, trucks, robots, and machine tools as supply chains move from China to emerging and frontier markets in Asia. We are seeing iPhone manufacturing moving to India. We are also seeing more investment in Vietnam. Japan will be able to benefit by supplying equipment and machinery for these operations in other Asian nations.
4) Monetary and fiscal policies. The Bank of Japan has not raised rates this cycle despite inflation surpassing their 2% target. This policy helps stocks despite hurting their currency, the yen. Japanese banks have not suffered the rising interest rate shocks that have plagued American banks. If the Bank of Japan raises interest rates, the yen should strengthen and it will lead to Japanese investors moving money from offshore banks into Japanese stocks and bonds.
The Japanese economy and stock market should experience steady growth over the next quarters and years fueled in part by the factors we have just discussed. Warren Buffet is placing a bet on Japan with his purchase of Japanese trading firms. These firms provide everything from energy to minerals despite Japan having new natural resources. These companies derive most of their revenue from non-trade activities. They have built up interests in a wide range of things from logistics to real estate. They are playing an increasing role in EVs and renewable energy.
Works Cited:
https://www.schwab.com/learn/story/japan-reclaiming-lost-decades
https://www.cnbc.com/2023/05/05/why-warren-buffett-is-keen-on-japans-versions-of-berkshire-hathaway.html
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