*Yes? No?
It was once an economic powerhouse second only to the United States, and its companies, products and technological innovations ruled the international business community and attracted a huge consumer base.
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However, after a series of events brought about by policy and economic factors, a drastic crash of its markets and economy resulted, and deflation and stagflation kicked in, marking the beginning of the so-called Lost Decade in the early 1990s. Later, the term had been pluralized to include the decades of 2000s and 2010s (i.e., Lost Decades). The extension of the lost years was due to the subsequent natural and market disasters such as the Global Financial Crisis in 2008, the Tohoku earthquake of 2011, and the COVID19 pandemic in 2020, not to mention the rise of the Chinese economy and competition.
In late 2023, the Nikkei 225 index, one of the two indices used as barometers of the Japanese equities market, began its surge to recovery, and by around February 2024 had gone to its all-time high, surpassing the level last reached in December 1989. In recent times, there were calls by institutions to invest in Japan, and Buffett’s company Berkshire Hathaway had made inroads into the five largest trading houses, which are diversified companies with huge horizontal and vertical industries and services.
On the economic front using the gross domestic product (GDP) growth rate, between Q4 2023 (coinciding with the beginning of the Nikkei 225 recovery) and Q2 2025, five of the seven quarters were positive, ranging between -0.5% (Q1 2024) and +0.7% (Q2 2024)1.
However…
Core inflation figures went to at least 2% every month year-on-year since Apr 20222, and while such figures were considered normal in most developed countries, for Japan, after experiencing periods of low or negative inflation, this was a rude shock, especially when real earnings including bonuses were mostly in the minus region during the same period3. Whilst the government tried to arrest the issue of inflation by raising interest rates, the sharp spike from 0.1% to 0.25%4 in end Jul 2024 caused a brief global market crash in early Aug 2024 (dubbed the “unwinding of the Yen carry trade”).
On top of GDP and inflation, two others longer termed “elephants in the room” are the oft-mentioned decreasing population demographics and the threat of a large earthquake (and accompanying tsunami) within the next 30 years. With so much not-so-good factors and news happening, is it still a compelling market to enter?
The Bedokian’s Take
Currently Japan is ranked fourth globally in nominal GDP on an individual country basis, below the United States, China and Germany respectively, but it is forecasted that their position would slip to fifth by the end of this year with India overtaking them. Despite having more negative than positive factors highlighted above, the silver lining is to capitalise on the weaknesses themselves. For instance, the rapid greying population favours healthcare and its related sectors and industries (e.g. medical technology components, geriatric equipment, etc.). Automation, where Japan was at the forefront before their Lost Decades, sees further runway ahead with its major role in addressing the dwindling labour population.
A weakened yen, though sounded like bad news for Japanese tourists wanting to travel overseas, is a good one from the country’s point of view in terms of the price competitiveness of its exports. In turn, this would bring about an increase in export-oriented domestic production and manufacturing (and incoming tourist dollars, too).
Learning Points
Looking at the macroeconomics of a country constituted part of The Bedokian Portfolio’s economic conditions layer for fundamental analysis5. Numbers like GDP, interest rates, inflation rates, etc. are publicly available from many sources and they tell an economy’s health and performance. While these macro variables are beyond one’s control, it is good practice to take them in for thought while carrying out one’s investment analysis.
1 – Japan GDP Growth Rate. Trading Economics. https://tradingeconomics.com/japan/gdp-growth (accessed 16 Aug 2025)
2 – Japan Core Inflation Rate. Trading Economics. https://tradingeconomics.com/japan/core-inflation-rate(accessed 16 Aug 2025)
3 – Japan Real Cash Earnings YoY. Trading Economics. https://tradingeconomics.com/japan/real-earnings-including-bonuses (accessed 16 Aug 2025)
4 – Japan Interest Rate. Trading Economics. https://tradingeconomics.com/japan/interest-rate (accessed 16 Aug 2025)
5 – The Bedokian Portfolio (2nd ed), p91-93
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