As investors seek global diversification amid an uncertain market outlook, Japan cannot be ignored as an option among those countries likely to feel the ripple effects of US tariffs.
Now on a promising growth path supported by inflationary forces, wage growth and the international reach of domestic corporates, Japan offers a compelling case for portfolios.
“We see encouraging signs of Japan’s economy normalising again, given its stronger growth outlook and higher inflation following decades of deflationary doldrums,” said Dina Ting, head of global index portfolio management at Franklin Templeton.
In particular, she expects stronger wage growth to usher in more household consumption. Japan’s nominal GDP for 2025, for example, is projected to constitute about 3% of the global economy, according to The World Bank and World Economics, up substantially from the 1.2% average during the 2015-2019 period.
Looking global
Japanese companies can also count on their diversified approach to international expansion to buffer concerns over looming tariffs.
In addition to establishing local US operations, Japan’s corporates over recent decades have extended their global footprint to reduce dependence on any single market. Japanese-brand automakers are a case in point, accounting for nearly one-third of all vehicles produced in the US, according to the Japanese Automobile Manufacturers Association.
“Despite its ongoing – though hardly exclusive – demographic challenges, Japan’s dominance in the international business landscape is widely attributed to its effective globalisation strategy,” explained Ting.
“Even with the US as Japan’s top trading partner, Trading Economics (2024) shows the country’s 2024 US-bound exports constituted just about 21% of its overall exports,” she said.
Rewarding investors
Japanese companies are also increasingly a source of higher returns for equity investors.
Despite some perceptions, Japanese stocks, as measured by the Nikkei 225 Index, have delivered more than 8% annualised returns over the past 10 fiscal years. “Solid earnings growth fuelled the upward trend in both dividends per share and underlying price returns during that time,” said Ting.
Further, it has been notable in recent years that a growing group of vocal and assertive investors have driven a shareholder-friendly transformation of “Japan Inc”, in turn spurring progressive dividend policies.
This is paying off for investors. In April 2025, for example, Japanese companies announced share buybacks that were nearly triple that of 2024. More specifically, the Financial Times reported in late April that listed groups in the Tokyo Stock Price Index (Topix) benchmark collectively unveiled $27bn of buybacks for the month, up from around $8.45bn in the same month last year.
“Japan’s most prominent banks have also announced plans to buy back shares,” Ting added, “which may be a boon for these institutions later this year when analysts anticipate the country may (at long last) continue on its path of raising rates.”
Meanwhile, in US dollar terms, Japan’s Topix stock gauge has also outperformed the US, up 8.66% versus a decline of -1.05% for the Dow Jones US Total Stock Market Index year-to-date (as of May 21, 2025).
