① Japanese stocks have experienced an unprecedented rise this year, showing that overseas investors are optimistic about this market, but some data shows that the risks are accumulating; ② A report shows that the number of Japanese zombie companies has reached a new high, which, combined with expectations of interest rate hikes, may cause the Japanese economy to face great challenges; ③ analysts warn that Japanese stock valuations are close to normal levels, and further increases require additional impetus.
This week, the Nikkei Index rose 35,000 points to a record high. The continuous influx of overseas capital is a key factor in the hot start of the year for the Japanese stock market, but the market still needs to be wary of the risks hidden behind this “hot money” market.
According to a report from the Imperial Japanese Database on Friday, the number of Japanese zombie companies reached 251,000 in the 12 months ending March, accounting for 17% of the total, an increase of nearly one-third over last year.
According to the database, this figure is the highest level in Japan since 2011, when Japan was suffering major disasters such as earthquakes, tsunamis, and nuclear spills.
The surge in zombie enterprises means that the efficiency of the Japanese economy is actually unsatisfactory. It is largely a sequelae of large-scale fiscal stimulus from the Japanese government and central bank during the pandemic. And considering that Japan is likely to change its monetary policy and raise interest rates this year, a large number of zombie companies may deal a major blow to the Japanese economy at some point.
Meanwhile, Japan's Tokyo Stock Exchange announced the first batch of companies to improve capital efficiency this week. Out of 1,656 major listed companies, only 40% are willing to improve capital efficiency. However, well-known Japanese companies such as Toyota, Nintendo, and SoftBank have yet to make further promises to increase their valuations.
At the same time, it is alarming that while the Japanese stock market has welcomed a large amount of overseas investment, it has also seen the flight of local investors. Various signs suggest that Japan's current prosperity may not last long.
Be wary of overheating
The Bank of Japan will hold a monetary policy meeting next week, and the market generally expects negative interest rates to remain unchanged. Economists' consensus is that the Bank of Japan may start raising interest rates as early as April, but even the rate hike will not be significant.
However, interest rate hikes still pose a risk to the stock market. On the other hand, Japanese stock analysts believe that the valuation of Japanese stocks is close to normal, not the obvious undervaluation of last spring, and the market needs to be wary of the possibility of overheating.
Masashi Akutsu, chief Japanese stock strategist at Bank of America in Japan, said that stock prices are no longer as clearly undervalued as last year, and there are no obvious benefits to entering now. Tsuyoshi Shimizu, head of research at Asset Management One, also believes that larger growth requires new catalysts.
Analysts also warned that some Japanese stocks in semiconductors and other fields have shown signs of overheating.
Chip manufacturing equipment supplier Disco's price-earnings ratio rose from 20 a year ago to 55, far above its 10-year average. The stock price of Tokyo Disney operator Oriental Land rose 50% from the end of 2022, and the price-earnings ratio reached 86 times, far higher than the ten-year average of 65 times.