Nikkei touching heights was a perfect dish made from the ingredients from different boxes. Robust economic growth weakened Yen, and negligible interest rates were good enough, but the wind from Buffet came as a surprise ingredient
Japan’s benchmark index Nikkei 225, has soared 30% since the beginning of this year. It has left behind its counterpart, the US benchmark index S&P 500. Nikkei has been dormant for the last three decades.
The start of the year was not that great in terms of returns, but things started to change in mid-March. But Warren Buffet surprisingly came as a catalyst for the market. He announced that Berkshire Hathaway had increased its stake in Japanese trading firms to 7.4%. Since then, Nikkei has surged more than 15% to date.
Japan’s economy had been clogged since the bubble of the 1980s. The Japanese work environment became pale, with neither growth for shareholders nor raised for workers. A perfect setup for no economic growth. Later in 2014, the late Prime Minister Shinzo Abe announced a plethora of economic reforms to kick-start the world’s third-largest stagnant economy.
Fast forward to this year, Japanese firms seem to change the traditional ways and have written a new growth trajectory for the nation. Canon shareholders have appealed for a fresh set of board of directors with diverse experience. Citizen Watch has announced a buyback of 25% of its shares from the market to saturate value and reduce the stock’s liquidity. Uniqlo has announced a raise of 40% for its workers.
Nikkei touching heights was a perfect dish made from the ingredients from different boxes. Robust economic growth weakened Yen, and negligible interest rates were good enough, but the wind from Buffet came as a surprise ingredient.
Japan’s gross domestic product (GDP) for the month of January to March was updated to a yearly rate of 2.7% from the first calculation of 1.6%. This increase could not be that accurate as much as corporate spending making its way inwards in the form of staking up inventory. Consumer spending, an important indicator to consider while calculating GDP, was slightly on the downside.
The Japanese government has worked on two pivotal longstanding concerns deflation and lower wages. These problems saw a bit of improvement in the past few months. Consumer prices rose to their highest levels in decades, 3.4% in April; this data was calculated without including fresh foods.
On the other side of the globe, other developed economies like the United States and Europe are struggling with inflation, while the Japanese are happy with it. Rising inflation has long been waited for by the Bank of Japan. The central bank has also signalled that they will move forward with monetary easing.
Chong Hoon Park, the head of economic research for Japan and South Korea at the Standard Chartered Bank in Seoul, said that this inflation is mostly due to the supply chain crisis after the pandemic and has no relation with the increase in remuneration.
The central bank now has another problem to tackle, to maintain the increased income rates and further improve them. Larger firms with billions of dollars in their coffers have announced an increase in wages by an average of 3.9% this year.
Prime Minister Fumio Kishida said that the government is focused on increasing salaries and developing a free ground for employees to change jobs in search of higher salaries. He emphasised the point that his economic priorities tend to be the structural wage increase and worker-centric changes in the labour market.
Tokyo Stock Exchange is another giant opting for a change. The exchange drafted a plan to force listed companies trading below their book value to increase their stock prices. As per market experts, certain possible ways to increase prices are buyback plans or paying out hefty dividends. Toyota and Honda have announced their plans for a buyback. This news has increased the prices of Toyota by 27% and Honda by almost 50%.
A hedge fund manager, Seth Fischer, has preached to Japanese companies to focus more on increasing profits and stock prices. He has publicly stated his views several times. He had urged Nintendo to enter into mobile phone gaming.
Fischer says about the changes in the camera and optical equipment company Canon that they are making appropriate changes and also pouring money into the economy. Canon shareholders nearly threw the chief executive from the board for the irregularities of gender diversity roles on the board.
Shareholders have also pushed the companies to open their exchequer and go on an investing spree. This has led the Japanese firms to announce plans for a buyback of $70 billion last year. As per estimates, this year’s dividends might make another record of $100 billion.
Warren Buffet recently increased his stakes in Japanese companies similar to Berkshire. Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui Corp, and Sumitomo Corp. are the ones witnessing fresh investments from Omaha. This Japanese shift can also be credited to increased tensions between the United States and China, which is shifting investors from China to Japan.