It took more than thirty years, but Japan may finally be on the cusp of a new economic era. After decades of deflation, stagnation, and demographic headwinds, the world’s third-largest economy is showing real signs of life.
If you’re still anchored to the “Lost Decade” narrative, it’s time to adjust your compass.
Start with the big picture: inflation in Japan is finally here, and that is a good thing. After years of trying to nudge price levels higher, the Bank of Japan has achieved something that once seemed impossible, a headline inflation rate over 3% and core-core inflation (which strips out food and energy) around 2.8%.
This is not runaway inflation. This is normalization. It is the end of a deflationary mindset that has kept consumers cautious and wages stagnant. Speaking of which, wages are now rising too, thanks to tight labor markets and a shrinking workforce that has finally given employees some bargaining power. Real wage growth is still lagging a bit, but the trajectory is right.
On the monetary policy front, the Bank of Japan made headlines in March 2024 by finally ending its negative interest rate policy. That marked the first rate hike in 17 years and the symbolic end of an era of extraordinary easing. It also marked Japan’s return to monetary policy normalcy. Gone is the yield curve control regime. In its place is a traditional rate targeting system like those used in the U.S. and Europe. Japan is no longer the outlier. It is rejoining the global financial mainstream.
Even the once anemic GDP growth rate is improving. In 2023, real GDP expanded by 1.9%, with Q4 2024 showing 1.1% year-over-year growth. That may not sound spectacular, but given Japan’s aging population and past headwinds, it’s more than respectable.
The trade deficit has also narrowed sharply, with record exports (particularly in autos) and a booming services surplus. Meanwhile, foreign investment income continues to pile up, pushing the current account solidly into surplus territory.
Then there’s the stock market. Japan’s equity market has finally caught fire. After languishing for over three decades below its 1989 high, the Nikkei 225 finally eclipsed that peak in 2024, closing in on 42,000 and leading the world in equity performance.
That move wasn’t driven by speculative mania, but by real earnings growth, aggressive share buybacks, and long-overdue reforms in corporate governance. The Tokyo Stock Exchange has pushed companies to raise ROE and address chronically low price-to-book ratios. Firms are responding. Cross-shareholdings are down, boards are becoming more independent, and management teams are starting to think more like owners.
Foreign investors are noticing too. Warren Buffett made headlines by boosting his stakes in Japan’s trading houses. Institutions across the globe are following suit, shifting exposure out of China and into Japan. The yen, once battered by interest rate differentials, is now finding its footing as the BoJ lifts off zero.
In KKR’s 2025 Outlook, they specifically highlight Japan as a key opportunity area: “We see opportunities in inter-company holdings. There is an accelerating unwind of Japanese strategic holdings within the corporate sector, encouraging a wave of stock buybacks. Additionally, we advocate for more active capital management, including backing companies transitioning from capital-heavy to capital-light models through Private Equity.”
A stable to strengthening yen, combined with structural reforms and a new era of pricing power, makes for a very interesting setup.
Look, Japan still has challenges. The population is shrinking, productivity growth could be stronger, and public debt remains sky-high. But for once, those aren’t the only parts of the story. Japan has exited the deflation trap. The stock market is not only alive but leading the pack. Policy is normalizing. Corporate governance is improving. Wages are moving. Investors are finally being rewarded.
Bottom line: Japan isn’t the basket case it used to be. It’s becoming a compelling story again—one that belongs in any serious global investor’s playbook. If you’re looking for value, reform, and upside, it might be time to look East. Japan is back in the game.
Okay. Melvin, we get it.
Can we move on now?
No.
No, we cannot.
There is every reason to believe that after 15 years of US markets flying high and long periods of Japan underperforming, we may see a reversal of fortune.
It is time to look outside the United States for high return opportunities.
Let’s start with the five trading companies Buffett has been buying and suggested last week that Berkshire will own for at least 50 years.
They are ITOCHU ITOCY, Marubeni MARUY, Mitsubishi MSBHF, Mitsui MTSFY, and Sumitomo SSUMY.
These companies are in a wide range of businesses including finance, energy, metals, machinery, chemicals, food, and textiles.
They are cheap based on both earnings and assets and have attractive dividend yields.
The other stock that seems like a layup from here is Kansai Electric (KAEPY). Kansai is the second largest industrial region of Japan and contains the metropolitan region of Osaka, Kobe, and Kyoto, which is the second largest in Japan.
Looking beyond the headlines, Kansai Electric Power stands as a textbook example of how traditional utilities can transform themselves into multi-dimensional businesses that weather economic cycles better than their one-trick-pony counterparts.
As Japan’s second-largest electric utility serving the industrial heartland of Osaka, Kyoto, and Kobe, Kansai Electric has been quietly building a business model that extends far beyond simply keeping the lights on. While Wall Street and financial media remain fixated on flashier tech names, real value investors understand that essential services with diversified revenue streams often deliver steadier returns.
Kansai operates through four distinct segments – energy, power transmission, IT/telecommunications, and lifestyle solutions – creating multiple paths to profitability regardless of economic conditions.
Their telecom operations under the “eo Hikari” brand and “mineo” mobile business represent the kind of steady cash flow businesses value investors prize.
What particularly catches my attention is their international expansion strategy. Unlike companies rushing into fashionable markets, Kansai made calculated moves, starting with hydro projects in the Philippines and recently taking a significant 49% stake in a German offshore wind project. This methodical approach to capital allocation, putting money to work in undervalued assets with predictable returns, is reminiscent of Buffett and Munger in their heyday.
On the energy technology front, they’re investing $7 billion to expand renewable capacity. Their research focuses on practical technologies like carbon capture, small modular reactors, and grid optimization. They are not chasing headline-grabbing moonshots that rarely deliver returns.
Perhaps most interesting is their hydrogen and ammonia strategy, targeting 30% of Japan’s hydrogen supply chain by 2050. While everyone else is busy chasing the latest AI startup, Kansai is quietly positioning itself in infrastructure that will be essential regardless of which way the technological winds blow.
Compared to US utility companies, shares of Kansai Electric are cheap. The stock is currently trading at 64% of tangible book value and less than 5 times free cash flow.
The yield is currently about 3%.
We are not done with Japan yet. There are still plenty of smaller cap companies that are worth exploring as we look for alternatives to the potential lost decade here in the US.
© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
