Over the past half year, as the Japanese stock market broke through a record high 34 years ago and the yen exchange rate continued to fluctuate at a low level, the global financial media preferred to talk about “getting out of the lost 30 years” at three intervals, and there were also quite a few shopping strategies related to the yen exchange rate on social media such as Xiaohongshu.

In this “golden hour never ends” atmosphere, a “changing era” where no one knows the outcome is immeasurably approaching. The Japanese stock market, assets, and even the global economy are nervously waiting for the Bank of Japan to ring the bell of a new era.

Who are the “samurai groups” in the Japanese stock market?

Facing the recognized “Big Seven” in US stocks and the “11 Knights” of the European market, the capital market, which loves to manufacture and hype up concepts, has clearly not forgotten the Japanese market.

Goldman Sachs's portfolio strategy team also came up with a Japanese version of the “First Seven Samurai” (7 Samurai) against the US stock “Big Seven” last month at the buyer's request.

The 7 companies given by Goldman Sachs are: four semiconductor equipment manufacturers SCREEN Holdings/DIENS, Edwin, Disco, and Tokyo Electronics, plus Toyota, Subaru, and Mitsubishi.

The list sparked controversy as soon as it came out. Although these companies are quite famous on their own circuit, when it comes to listed companies that “represent Japan,” Goldman Sachs's list is indeed missing quite a few things.

Gearoid Reidy, who worked for Japanese game giant Capcom and worked as a financial journalist in Japan for more than ten years, pointed out that the top 7 US stocks are not just a basket of stocks; they themselves are a symbol of contemporary US stocks. At the same time, the Japanese market should also have a list that reflects the state of modern Japan and Japanese companies.

For Goldman Sachs's list, Gearoid gave the “7 Samurai List”, retaining only Toyota, and adding Nintendo, SoftBank, Keynes, Sony, and two other smaller local companies.

Combining these two lists, we have basically rounded up the largest and most representative companies in the Japanese market by market capitalization.

Toyota Motor — the largest Japanese stock market capitalization (US$313.5 billion), has doubled its share price in the past year.

Semiconductor concept stocks such as Tokyo Electronics, Diens, Edwin, and Disco — Nvidia and AI concept beneficiary stocks. Tokyo Electronics' stock price has tripled in the past year.

Jienshi, a Japanese manufacturer of industrial automation systems, is not only the “ceiling” of the Japanese manufacturing industry, but also the “ceiling” of the remuneration of Japanese migrant workers. The company's stock price has doubled 14 times since 2010. The owner, Takemitsu Takizaki, is the second-richest person in Japan, after the Express Sales (Uniqlo) Yanai Tadashi family.

SoftBank — a Japanese company that domestic investors are very familiar with. Although a few years ago, due to mistakes in betting on startups such as WeWork, were compounded by a cycle of violent interest rate hikes by the Federal Reserve, huge losses once made Sun Zhengyi “wash his face with tears” in the middle of the night. However, his insistence on technological innovation was finally recognized again in the generative AI era, and the successful listing of ARM also brought SoftBank's stock price to a new high.

Nintendo and Sony — symbols of Japan's soft power and Japanese capitalism.

Five major trading companies including Mitsubishi Corp. — Buffett loves shares, which can also be seen as the starting point of “daily revaluation” in recent years.

Everyone is the same! Most stocks don't beat the index

Japanese listed companies that can be named by international investment banks and well-known journalists are naturally leaders in their respective industries, yet just like US stocks. Most of the constituent stocks of Japan's Tokyo Stock Exchange Index are still running side by side in the bull market.

The following two charts show the three major bull markets in the past 20 years: Koizumi Bull Market (2003-2006), Abenomics Bull Market (2012-2017), and the current round of market conditions.

It is easy to see from the chart below that during the “Koizumi Bull Market” period, there was an initial round of general gains, and as the market progressed, there were fewer and fewer constituent stocks that could outperform the Tokyo Stock Exchange Index; however, during the Abe period, there was also a general rise for a while (2015); however, in this round of the bull market that reached record highs, only about 30% of stocks were able to outperform the index most of the time.

Another way to put it is that between mid-December last year and the end of February this year, the 10 stocks that contributed the most to the rise in the Eastern Stock Exchange Index contributed more to the index than the 11-50th ranking stocks added up.

Uncertainty surges: Withdrawing from negative interest rates in March?

At the time of writing this article, the latest news in the early hours of Thursday morning Beijing time showed that Bank of Japan officials intend to discuss whether to end the negative interest rate policy at the monetary policy meeting starting next Monday (resolution issued on Tuesday).

Currently, the Bank of Japan's policy interest rate is -0.1%. If the Bank of Japan chooses to raise interest rates next Tuesday, this will also be their first rate hike since February 2007, and marks the end of the “negative interest rate” policy since February 2016.

People familiar with the matter said that Bank of Japan officials will also discuss canceling the yield curve control policy, but they will retain the ability to interfere with the market in the face of a surge in treasury bond yields.

Meanwhile, the Bank of Japan began purchasing stock ETFs and real estate investment trusts in 2010, and is likely to end next week.

According to people familiar with the matter, the key data to decide whether the Bank of Japan will raise interest rates is on Friday — the Japan Federation of Trade Unions (RENGO) will initially reveal the results of the spring labor negotiations (spring battle). Results on Friday showed that large Japanese companies agreed to raise wages by 5.28% in the 2024 fiscal year, the highest wage increase in 33 years. This performance completely surpassed expectations, and strengthened that the Bank of Japan will soon abandon large-scale stimulus plans.

Analyst: There are new highs ahead

Goldman Sachs analysts Kazunori Tatebe and Bruce Kirk raised the TOPIX East Stock Index target price for the next 12 months from 2,650 points to 2,900 points in a recent research report. This also means that analysts believe that Japanese stocks will also reach new highs after the firm interest rate hike is implemented.

Two analysts pointed out that the rising performance of the Japanese stock market since last year has not changed the two major structural changes that underpin the logic — domestic inflation and changes in corporate governance. Bank of Japan officials personally acknowledged in recent speeches that “Japan has entered an era of inflation,” and the Tokyo Stock Exchange continues to pressure listed companies to announce governance reform plans, and introduced mandatory bilingual credit disclosure requirements, etc.

(Source: GS, Eastern Stock Exchange)

Goldman Sachs also pointed out that the increase in profitability of Japanese listed companies in the next few years, combined with foreign investors who drove the sharp rise in Japanese stocks in the second quarter of last year still have “ammunition” in their hands to increase their positions, will also be a potential driving factor for the rise in Japanese stocks.

However, Goldman Sachs also warned that pension funds usually rebalance their positions at the end of March, compounded by the fact that local investment institutions prefer to settle in their pockets at the beginning of the new fiscal year (April). At that time, there may be a relatively obvious trend of profit recovery. However, analysts also believe that this retracement is unlikely to be particularly significant, because investors who haven't had time to “get on the bus” will show a strong desire to buy at that time.

edit/new