The Nikkei 225: Thirty-Five Years in the Making

I have been listening to today's Guardian "Today in Focus" podcast featuring Sanae Takaichi, Japan's first female Prime Minister (link attached). The episode covers her personal story, her hawkish stance on Japan's military posture, and her policies, including a notably restrictive approach to immigration. It does not spend much time on Japan's economy per se. But it got me thinking. The Nikkei 225 just hit 60,537. An all-time high. Up 110% in five years. It has lapped the S&P 500's 71% gain over the same period. Japan is not a comeback story anymore. It is a different story entirely. Here are five reasons why.

1. Corporate Governance Reform Japanese boardrooms were retirement homes for insiders who owned each other's shares and answered to nobody. The Tokyo Stock Exchange ended the party. Companies trading below book value were told to fix it or explain why. What followed was a wave of buybacks, dividend increases, and actual accountability.

2. The Weak Yen A weak currency is usually a symptom of something broken. In Japan it is a profit machine. Toyota, Sony, Hitachi: every dollar they earn abroad converts back into more yen than it did three years ago. No new products required. No operational miracles. Just a currency doing the work.

3. Takaichi and the Abenomics Playbook Shinzo Abe is gone. His economic doctrine is not. Takaichi has made herself its most committed heir. Aggressive stimulus, fiscal spending, structural reform. The continuity matters more than the ideology. Global capital does not care about political philosophy. It cares about predictability.

4. Semiconductors and AI Japan does not make the chips. It makes the tools that make the chips. Advantest tests them. Tokyo Electron manufactures them. Kioxia stores the data they process. No AI buildout happens without this supply chain. TSMC needs Tokyo Electron. NVIDIA needs Advantest.

5. Inflation Is Back. Banks Win. Japan was deflationary for thirty years. Prices fell, wages stagnated and banks had nothing worth lending into. That is over. Inflation is back and the Bank of Japan is raising rates for the first time in a generation. Japanese banks are printing wider margins on deposits that cost them nothing for decades. We just saw the NII boom in US bank earnings in the last 10 days. Japan is running the same playbook. Except Japan is in the first inning.

Thirty-five years to reclaim a peak.

Five structural forces to explain what comes next.

This is not the same Japan.

Stay Curious and Keep Learning. Investing. Thriving.