- 92 Japanese businesses pledged over ¥3.8 trn ($26 bn) of buybacks in April, triple the amount a year earlier5
- Cars make up 21% of Japan’s annual export revenue, some $150.89 bn1
- Japan’s tariff negotiator is arranging his 7th visit to the US since April
Japan has been uniquely affected by several economic and regulatory forces in recent times, making it a topical place of discussion as it grapples with corporate governance reform, trade tensions and a persistent but moderate inflation revival. This week we will discuss each of these points as we retain our ‘slightly positive’ stance to Japanese equity.
The Spring deadline
Two years ago, the Tokyo Stock Exchange (TSE) gave Japanese listed equities a spring 2025 deadline to meet stricter listing criteria and improve corporate governance with the aim of reversing its ‘value trap’ reputation. Since then, Japan has blossomed into hub of corporate activity with company boards keen to return cash to shareholders by way of buybacks. These announcements reached a record breaking ¥3.8 trn in April, up three-fold from the commitments made a year prior and momentum is set to continue with significant excess cash still on corporate balance sheets5.
Source: JP Morgan6, 2025 (link available below)
Tariffs
Nobody’s been immune to trade uncertainty in recent times but given Japan’s largest export (automobiles) was directly tariffed by the US on 3rd April, they have been particularly motivated to negotiate a deal to avoid a further 24% tariff being imposed next month. Indeed, Japan’s trade negotiator is planning his 7th visit since the tariff took affect and has advised U.S. defence equipment purchases, shipbuilding technology collaboration, a revision of automobile import standards and an increase in agricultural imports are all on the table to aid talks2.
Despite this, automobile exports to the US have been resilient and there are signs that carmakers are actually reducing their prices in the region to accommodate for the tariff and protect market share. The latest statistics show that while the number of US-bound motor vehicles was only down 3.1% y/y, the value of those exports plunged by 24.7% y/y3. Subsidising car prices will obviously have an effect on profitability, but given demand has increased in other regions, and the Yen has been weak in recent years, profits have reached record highs for Japanese carmakers like Toyota, Honda, and Suzuki – and they should be well insulated to cover additional costs.
Export prices of motor vehicles (% y/y)
Source: Capital Economics
Inflation and consumption
Before 2021, Japan endured an extended period of stagflation that’s widely been referred to as the ‘lost decade’. During this time, Japan experienced slow or negative growth with GDP averaging 1.3% over the 1990’s – significantly lower than other G7 countries7. Household savings increased, but consumers persistently put off purchases which resulted in reduced demand and low growth for the economy.
However, as shown in the below graph, moderate but above target inflation has recently been felt, and has lifted the economy out of the stagflation cycle. Indeed, Japan’s inflation is now above any other major advanced economy. With prices increasing in the near term, consumers are no longer delaying purchases and spending is on the rise, some 2.1% up from the prior year 4. According to the latest Tankan survey, the labour market is at its tightest since the 1990’s, helping wage growth to reach 4% last quarter, the highest in decades. This year’s inflation should help trade unions in next years Shunto negotiations, so we expect wage growth to continue.
Consumer prices excluding tax (% year on year)
Source: Capital Economics, 2025
Bowmore portfolios
We rotated our exposure within Japanese equities towards value style investing back in late 2022, introducing the MAN GLG Japan Core Alpha fund given valuations were trading at attractively depressed levels and inflation was finally being experienced in the region for the first time in 25 years.
This exposure has returned some 34.7% since purchase, proving beneficial for portfolios. Moving forward, as the trading environment becomes more clear and the positive self-fulfilling cycle of monetary policy normalisation, increased consumption and moderate but persistent inflation gathers pace with strengthening effects on the Yen, we can look to rotate our exposure again toward more domestically focused and less currency sensitive strategies.
Source: LSEG Datastream, market data as at 26/06/2025
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Sources:
1 Trading Economics, 2025
2 Reuters, 2025
3 Capital Economics, 2025
4 Reuters, 2025
5 Financial Times, 2025
6 J.P. Morgan, 2025 Guide to the Markets | J.P. Morgan Asset Management
7 Investopedia, 2025