With deflationary tendencies and an economy that hasn't seemed to budge since the 1980s, Japan is held in high esteem for its stability and economic size.

For the reasons mentioned, however, interest in the Japanese stock market is rather low.

The markets in the land of the rising sun are among the more stable in these very uncertain times.

The leading Japanese indexes Topix and Nikkei 225 have lost just 1.1 percent and 1.9 percent since the beginning of the year.

The American S&P 500, on the other hand, lost 13.6 percent.

Gregory Bruner

Editor in Business.

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The situation on the Japanese markets is largely determined by inflation.

The higher inflation long awaited by the Japanese central bank now seems to be taking hold.

In April, the inflation rate reached 2.5 percent.

That may still be low compared to 7.9 percent in Germany.

However, the last time prices in Japan rose to this extent was in December 1991. Examples are price increases for soy sauce or for food in restaurants.

The increase in prices at the Sushiro conveyor belt sushi restaurant chain made headlines in early May.

For almost 40 years, plates with mostly two pieces of sushi cost 100 yen (0.69 euros).

Now the prices are said to be between 120 and 150 yen, depending on the location.

So prices will go up by at least 20 percent.

Inflation is being held back by strong domestic price competition.

This prevents double-digit increases in producer prices from being passed on to consumers.

There were also no wage increases until recently.

Tax breaks from the government under Prime Minister Fumio Kishida for companies that increase their wages should give a breath of fresh air.

The wage development is supported by the demographically induced decreasing supply of workers.

While the proportion of working women appears to have reached a plateau, men are increasingly retiring from the labor market due to age.

With low birth rates of 1.3 children per woman in 2021, the supply of workers is likely to stagnate, if not fall.

However, until prices and wages reach stable growth rates, Central Bank Governor Haruhiko Kuroda will keep a low profile.

Yuichi Murao estimates that a tightening of Japanese monetary policy will only be possible with a new governor, who should take office in April 2023.

The senior portfolio manager for Japanese equities at the Nomura securities firm therefore assumes that continued low interest rates will primarily help export-oriented companies.

A widening gap between Japan's key interest rates and the rest of the world, but especially the US Federal Reserve, would keep the yen weak.

The already very low level of 133.353 yen per dollar allows foreigners to buy cheaply in Japan.

Domestic consumption, on the other hand, is suffering as rising prices are making consumers and companies cautious.

Future industries with low prices

In these conditions, portfolio manager Murao is eyeing the electronics and semiconductor sectors and their respective suppliers.

As an example, he named manufacturers of electric motors, in which Japan's automobile manufacturers such as Toyota or Nissan are global leaders.

Many are currently focused on the question of the best battery manufacturers.

But it also needs a motor that transfers the energy from the battery to the road, is Nomura's assumption.

From a fundamental point of view, Japanese stocks are also relatively cheap.

According to Nomura's figures, there are 275 companies in the US S&P 500 index that have a return on equity of 15 percent or more.

The value is used as a guide for the profitability of companies.

In the Topix there are 378 companies that make it to or above 15 percent return on equity.

However, valuations in the Topix are lower than in the S&P 500. The price-to-earnings ratio in the former is 14.16 on average, while the latter is currently 20.80.

Nomura therefore sees an entry opportunity at low prices with solid company data and more stocks to consider.