Chart of the Week
Since trade tensions eased in April 2025, the Japanese stock market has been experiencing strong momentum. The Topix has repeatedly surpassed its all-time high since the summer, currently trading around 3,300 points after a low of 2,243 points on April 7. The era of “lost decades,” when the Japanese market remained far below its 1989 peak, is now decisively over.
While part of this rally is a catch-up after years of stagnation, it is above all driven by the very strong earnings momentum of Japanese companies. Over the past 20 years, they have matched U.S. firms in earnings per share (EPS) growth, and over the last five years their momentum has been unmatched, with average EPS gains exceeding 10% annually.
OUR ANALYSIS
For many years, the strong growth of Japanese companies was not fully reflected in stock market performance. Two long-term trends are now contributing to the current revaluation. On the one hand, the end of deflation is strengthening companies’ pricing power and stimulating their growth investments — a trend welcomed by investors. On the other hand, the rapid improvement in corporate governance in Japan, actively promoted by Japan’s market authorities, is helping to better align the interests of executives and shareholders.
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Written on November 21 2025. Opinions subject to change.
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