Could Japan’s Stock Market Frenzy Make a Comeback?

Recently, Bank of America analysts noted that with U.S. stock valuations climbing, more investors are looking to diversify, showing a clear uptick in interest in Japanese stocks.

 

In a report to clients, BofA strategists led by Akutsu Masashi wrote that their meetings with global investors revealed a “more positive than expected” enthusiasm for Japan’s stock market.

 

They noted that European investors generally hold a neutral weighting in Japanese stocks, while Canadian investors lean toward “overweight or slightly overweight” positions.

 

In the U.S., however, investors with experience in Japanese markets tend to “underweight” these stocks, with many citing a “lack of catalysts” for Japan’s market.

 

The analysts wrote, “Still, the recent surge in interest in Japanese stocks surprised us, reminding us of 1-2 years ago when Asian investors poured money into Japan, sparking a major rally.”

 

Between 2023 and 2024, Japanese stocks saw strong foreign inflows, fueled by “Warren Buffett’s” investments in Japan’s top five trading companies, which supercharged investor enthusiasm and drove the Nikkei 225 to a 33-year high.

 

BofA highlighted that one of the biggest drivers for global investors in Japanese stocks today is the high valuation of U.S. stocks, pushing investors to seek diversification beyond the U.S. market.

 

The analysts added that signs of accelerating corporate reforms in Japan and the country’s shift toward an “inflationary economy” are also drawing investor attention.

 

While BofA cautioned it’s too early to call this a “surge” in interest, they noted, “This quiet shift in capital allocation… has already led to 10 consecutive weeks of net buying of Japanese stocks by foreign investors.”

 

That said, concerns linger for Japanese stocks, particularly with cloudy prospects for U.S.-Japan trade. The U.S. pause on “reciprocal” tariffs for Japan and other countries is set to expire early next month, and discussions around a new U.S.-Japan trade deal remain highly uncertain.