Japanese economyAdd to myFTGet instant alerts for this topicManage your dery channels hereRemove from myFTInvestors sense this time is different for JapanThe population is ageing and shrinking, and inflation has returned — how companies engineer survival is keyInflation has returned to Japan for the first time in many years, interest rates are rising and investors are expecting more change and reform © Noriko Hayashi / BloombergInvestors sense this time is different for Japan on x (opens in a new window)Investors sense this time is different for Japan on facebook (opens in a new window)Investors sense this time is different for Japan on linkedin (opens in a new window)Investors sense this time is different for Japan on whatsapp (opens in a new window) Investors sense this time is different for Japan on x (opens in a new window)Investors sense this time is different for Japan on facebook (opens in a new window)Investors sense this time is different for Japan on linkedin (opens in a new window)Investors sense this time is different for Japan on whatsapp (opens in a new window) Leo LewisPublishedSeptember 30 2025Jump to s section this pageUnlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly .The number of babies born to Japanese parents fell below 700,000 in 2024 for the first time since records began at the end of the 19th century.
The number had high shock value in itself, but for would-be investors the statistic came with two bigger surprises.The first was how fast the decline in Japanese births is now accelerating compared with median jections.Government demographers had not forecast Japan’s annual supply of newborns to break below the 700,000 line until at least 2039.The second, more counterintuitive, surprise was when the industry’s biggest trade association reported that Japan’s toy market surged almost 8 per cent in 2024 to hit record sales of $7.4bn.
There may be a chronic shortage of children, but grown-ups are in plentiful supply.Adults, not only in Japan but around the world, are increasingly the most reliable — and deep pocketed — buyers of the trading cards, character merchandise and other collectibles that Japan has been perfecting for decades.Japanese societyJapan’s population crisis reaches tipping point | FT FilmThese two revelations underline how important it is to dig beneath the headlines if investors are to fit from what could be a compelling picture of Japan at a historic moment of transformation.Alongside those rapidly falling birth numbers, the number of deaths in Japan rose sharply in 2024, so that the overall population of Japanese living in Japan declined by a record 909,000.
Japan’s population is ageing and shrinking and the country is running short of the domestic labour force it needs to maintain the economy in its current form.How companies engineer survival against this backdrop, say analysts, is now the Japanese investment story.
Automation, the pragmatic use of AI in industry, consolidation, buyouts, and both domestic and overseas M&A will be among the dominant themes for Japanese stocks in coming years.At the same time, the Japanese stock market is in a prime position to benefit from attempts by US investors to diversify their portfolios.Naomi Fink, chief global strategist at Amova, an asset manager, says that even after Topix, the broad benchmark that tracks the whole Tokyo market, reached all-time highs in September, it remained some way off looking expensive.
That is particularly so when compared with the valuations commanded by US stocks.“The fundamental viewpoint is that the trend is ly to be up — inflation sticks, cash being put to work that wasn’t before, there is a labour supply shortage.
In the long term, Japan has a growth trajectory,” says Fink.More from this reportRise of China EVs loosens jewel in Japan’s crownRegional banks bet bigger will be betterJapan gets déjà vu over Trump tariff tensionsYou can read Japan’s runes in the price of its prized curry and riceRout in Japanese bonds heralds ‘pivotal change’How labour shortages may the day for the BoJBuyout firms play the long game beyond TokyoShe notes too that many Japanese companies have been preparing for domestic population decline by focusing the majority of their es overseas in of both duction capacity closer to customers, and the customers themselves.
Fink says that global portfolio managers looking to diversify risk away from a US market in which most are heavily overweight will find the Japanese market offers a rare opportunity for uncorrelated returns.Japan has huge quantities of corporate cash waiting on the sidelines and the local population, who previously avoided their stock market, are beginning to invest.
Japanese institutions, meanwhile, have made good money in the US and it will make sense for many to lock in fits and park them in yen assets.
“There are lots of factors that limit your downside in Japan.
Global investors are driven by loss aversion — losing feels worse than winning feels good — and Japan is a good place to limit your downside,” says Fink.The sense that this time may be different has been underscored by the Topix’s recent succession of record highs.
Its long, sustained rally, notes Bruce Kirk, chief equity strategist at Goldman Sachs, has been driven by sustained buying by foreign funds — which would bably, in the past, have taken fits far sooner, killing the rally.
Investors now want to know what needs to happen for the Topix to command a higher price-to-earnings multiple.“The holy grail of in Japan is a stable yen and a longed rally, of the we have now” says Kirk.
“But looking ahead, consolidation has the potential to really push returns on equity higher, and to trigger a more serious re-rating of the Japanese equity market.”News in-depthJapanese & financeCan Tokyo tempt finance workers to manage its trillions?The biggest enthusiasts see the Tokyo stock market — long dismissed by global fund managers, and consequently forming an ever smaller portion of global stock indices — as a “must buy”.
Changes, reforms and wholesale shifts in thinking that have been resisted for years are now being forced on companies and the government by hard demographic reality, rising interest rates, and the return of inflation after many years.Shrikant Kale, a quantitative strategist at Jefferies, says that months of asking investors around the world for their views on Japan had found institutional money is increasingly interested in the way that many Japanese companies appear to be shifting to become more holder friendly.
Successive years of record buybacks and increasing dividends are raising the total yield on Japanese stocks to levels close to those of European counterparts.The fundamental viewpoint is that the trend is ly to be up.
Japan has a growth trajectory And when investors revisit the Japanese market — as they do with increasing frequency — the big question they confront, says Martin Schulz, chief policy economist at Fujitsu, is where the value will come from as reality bites.
Companies that have managed to remain afloat when monetary conditions were ultra-loose are being squeezed, he says, while the ones with money and nology will survive and will buy out others.“Some will disappear, some will become much better.
We see really that the market is shifting in two directions and investors have to look where the value is.
But in Japan, in every sector there is something to find,” says Schulz.Reuse this content (opens in new window) sJump to s sectionmoted ContentExplore the seriesREAD MORE in JapanInvestors sense this time is different for JapanCurrently reading:Investors sense this time is different for JapanBuyout firms play the long game beyond TokyoYou can read Japan’s runes in the price of its prized curry and riceJapan gets déjà vu over Trump tariff tensionsRise of China EVs loosens jewel in Japan’s crownRegional banks in Japan bet bigger will be betterRout in Japanese bonds heralds ‘pivotal change’See all 8 stories the topics in this article Asia-Pacific equities Add to myFT Demographics and population Add to myFT Japanese & finance Add to myFT Japanese economy Add to myFT Leo Lewis Add to myFT s