Fidelity Investments: Japan's economy is expected to grow steadily in 2025, and stock market investment is attractive

The Zhitong Finance App learned that Miyuki Kashima, head of Fidelity International's investment in Japan, said that the Japanese economy is gradually moving towards moderate inflation, and the Japan Eastern Stock Exchange Index and the Nikkei Average Index hit record highs in 2024. Regarding Japan's economic outlook, she said that as Japanese companies are being asked to pay attention to capital costs and stock price operations, the repurchase amount of Japanese companies since this year has reached 1.7 times that of last year. Companies have accelerated the improvement of the level of governance and are focusing more on profit margins. Employee remuneration has also recorded the biggest increase since 1991. Inflation, wage increases, and profit growth of Japanese companies gradually form a virtuous cycle, thereby driving the steady growth of the overall economy. Fidelity Investments believes that demand in the Japanese stock market is improving, and the market prospects for 2025 and beyond are still attractive.

Thanks to favorable factors such as rising market expectations for the results of Japan's corporate governance reforms, Japan's escape from deflation and the depreciation of the yen, Japan's Tokyo Stock Exchange Index and the Nikkei Average reached record highs in July 2024.

Beginning in 2023, based on the results of the “Abenomics” policy, the Japanese government continued to administer the policy of maintaining economic growth, and the economy gradually moved towards moderate inflation. In 2023, the Tokyo Stock Exchange (TSE) requires listed companies to “pay attention to capital costs and stock price management” to encourage domestic companies to accelerate the improvement of the level of corporate governance and focus more on profit margins.

From the beginning of this year to mid-November, Japanese listed companies announced plans to repurchase shares amounting to 16 trillion yen, 1.7 times the record share repurchase amount in 2023. Based on the amount of shares purchased, Japanese listed companies have been the biggest buyers in the local market since 2012, supporting the rise in the stock market. Just as share buybacks have played an important role in the rise of the US market over the years, they now also play an important role in the Japanese market. Since items such as sale of cross-shareholding are deducted in the process of calculating the net repurchase amount of listed companies, it is not possible to directly compare this data. However, the net share repurchase amount from the beginning of 2024 to the second week of November was 6.4 trillion yen, which is still a long way from the listed company's plan to repurchase 16 trillion yen of shares, which means that Japanese companies still have sufficient capital to continue to repurchase shares.

The virtuous cycle formed by inflation, wage increases, and profit growth of Japanese companies drove steady growth in Japan's nominal GDP, breaking through the 600 trillion yen mark in 2024, the highest level since the end of World War II. According to the “World Economic Outlook” report published by the International Monetary Fund (IMF), Japan's nominal GDP is expected to grow at a moderate rate of about 2% each year starting in 2025, and it is estimated that the nominal GDP will reach 700 trillion yen by 2029.

In this year's spring labor negotiations, commonly known as “Shunto” (Shunto), the average wage increase negotiated by various trade unions and employers this year was 5.1%, higher than 5% for the first time since 1991. After deducting the salary increase ratio based on seniority, the average salary increase was 3.6%, which means that the actual salary, which has been declining for a long time, has finally turned positive.

Despite the increase in salary increases, the share of wages in corporate profits continues to decline, especially in large companies, reflecting that Japanese companies still have room to raise their salaries. It is expected that the virtuous cycle of the Japanese economy will be further strengthened in the future. After profits are made, wages will be paid fairly to balance profitability and production capacity. As household income increases, consumption will be promoted, capital will flow back to the company's sales, and further boost corporate profits.

On the US side, Trump is about to begin his second presidential term, and it is difficult to predict the extent to which his protectionist policies will affect the global economy. Despite uncertainties, the long-term upward trend in the Japanese economy and stock market continues.