The number of babies born to Japanese parents fell below 700,000 for the first time in 2024 since records began at the end of the 19th century. The numbers themselves had high shock values, but for investors, statistics brought two major surprises.
The first was the rapidity of Japan’s birth declines currently accelerated compared to the median projection.
Government demographers did not predict that Japan’s annual supply of newborns would fall below the 700,000 line until at least 2039.
The second, more counter-intuitive surprise came when the industry’s largest trade association reported that the Japanese toy market had surged almost 8% in 2024, with record sales reaching $7.4 billion. There may be a chronic shortage of children, but adults are in a wealth of supply.
Adults, not only in Japan, but around the world, rest on the most reliable and deep pockets of trading cards, character products and other collectibles that Japan has completed for decades.
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These two revelations highlight how important it is to dig under the headlines if investors can benefit from what could potentially become a fascinating picture of Japan at the moment of historic transformation.
In addition to the rapidly declining number of births, Japan’s death toll rose sharply in 2024, resulting in a record 909,000 Japanese population of Japanese people living in Japan. Japan’s population is aging and shrinking, and the country runs beyond the domestic labor required to maintain its economy in its current form.
Analysts say the survival of corporate engineers against this background is the current Japanese investment story. Automation, practical use of AI in the industry, integration, acquisitions, and M&As both domestic and international will be one of the dominant themes of Japanese stocks for the coming years.
At the same time, Japanese stock markets are in a major position to profit from attempts by US investors to diversify their portfolios.
Naomi Fink, chief global strategist at asset manager Amova, says it reached an all-time high in September, even after Topix, a wide benchmark tracking the entire Tokyo market. That’s especially true when compared to the valuations ordered by US stocks.
“The basic perspective is that trends are likely to rise. There is a labor shortage that has not been inflationary, cash before, and there is a labor shortage. In the long run, Japan has a growth trajectory,” says Fink.
She also states that many Japanese companies are preparing to reduce their domestic population by concentrating the majority overseas for both production capacity close to their customers.
According to Fink, global portfolio managers seeking to diversify risks from the US market where most people are overweight, find that the Japanese market offers an unusual opportunity for uncorrelated returns.
A large amount of corporate cash awaits the bystanders in Japan, and locals who previously shunned the stock market are beginning to invest. Meanwhile, Japanese institutions make good money in the US, making sense for many to lock up profits and park on yen assets.
“There are many factors that limit the downsides in Japan. Global investors are driven by loss aversion. Winning makes you feel worse than feeling good – and Japan is a good place to limit your shortcomings,” says Fink.
The feeling that this may be different this time is highlighted by Topix’s recent record highs. That long and sustained rally has been driven by Goldman Sachs chief equity strategist Bruce Kirk with sustainable foreign-funded purchases. Investors want to know what needs to happen for Topix to direct multiples of revenue from a higher price.
“The sacred holy grail of investment in Japan is a stable circle and the kind of long-term gathering we have now,” says Kirk. “But looking ahead, the consolidation could actually drive higher stock returns and lead to a more serious revaluation of the Japanese stock market.”
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The biggest enthusiasts look at the Tokyo stock market. This has been long rejected by the Global Fund Manager, resulting in a smaller percentage of the global equity index, which we believe “should buy.” The long-standing changes in thinking, reforms and wholesale changes have now been forced on businesses and governments, and for many years.
Jeffries quantitative strategist Schrikanth Kahle says that months of asking investors around the world to view Japan have discovered that institutional money has become increasingly interested in the way that many Japanese companies seem to be changing to become more shareholder-friendly. Record stock buybacks and dividend increases over consecutive years have led to Japan’s stock total yields being raised to near European levels.
And when investors revisit Japanese markets — just as they increase their frequency — the big question they face is Fujii’s chief policy economist, Martin Schultz, says that it’s where value comes from when reality is bitten. The companies that somehow managed to float when financial conditions were slipping, those with money and technology survive, others survive, and others survive.
“Some will disappear, some will be much better. We really see that the market is shifting in two directions and investors have to see where the value is. But in Japan, there is something to find in every sector,” says Schultz.
