Japan’s miracle comeback - what investors need to know

It’s been decades since we’ve referred to Japan as an economic miracle, yet we may soon do it again. At one time, Japan’s industrial practices and education system were studied and emulated throughout Asia. Japan was regarded as the ideal development model. 

Japan’s rise was a miracle, because it shouldn’t have happened. How could a small, island country - with few strategic resources and its productive asset base destroyed by WW2 - become the world’s second largest economy? 

Japan’s economic success was spectacular, but the good times ended with the collapse of the bubble in 1989. A painful but necessary transition to a post-industrial structure began. Economic miracles were replaced by malaise and lost competitiveness. 

Until very recently, narratives on Japan focused on economic weaknesses, deflation, political paralysis, sumo-sized government debt and the looming challenge of a shrinking, aging population. How could Japan thrive against such headwinds? Why would this be attractive market to invest in? 

The Japanese market bounces back

Yet here we are in 2025 climbing the proverbial wall of worry with the Nikkei index already eclipsing its 1989 high - a level long thought to be unattainable. A weak currency, better corporate pricing power and improved shareholder returns have sparked much of this rally. Is it sustainable? 

I’ve dedicated three decades of my career to Japan, living and working there for most of that time. And I’ve never been as excited about the outlook for Japan. This runs counter to many negative narratives. Yet, the very same factors that made Japan great – a skilled workforce, innovation and pragmatic policy-making - remain intact. 

Welcome as they are, we think improving corporate governance and higher shareholder returns are only a prologue. The main event, a meaningful reorganisation of Japan’s corporate sector, has yet to begin. 

Japan has chronic labour shortages. This may not be the hindrance everyone assumes. Thanks to strong balance sheets, large Japanese firms can increase investment in labour saving AI, IT and automation. 

A classic investment-led boom in productivity could then drive corporate earnings higher, with rising real wages as firms compete for labour. This in turn should spark further industry rationalisation and usher in a long called-for period of creative destruction. The survivors are likely to emerge stronger, capturing most of a rising profit pool. We expect large firms with deep pockets to see an outsized benefit and have positioned the portfolio accordingly.  

Why Japan, why now?

Over the past three years Japan’s stockmarket generated annual returns of 17%.¹  In contrast to that speculative peak reached 35 years ago, Japan’s stock market is underpinned by strong fundamentals, the cumulative results of focused restructuring. Misunderstanding Japan today means leaving good potential returns on the table. So let me remake the case for Japan in 2025. 
 

• Governance reform is making Japanese companies more attractive – unwinding cross-shareholding and improving shareholder returns. Company management is under pressure to perform.
• As inflation abates, productivity enhancing investment is spilling over into higher real wages
• Japan is carving a unique place in the global economy as we transition into the world of physical AI – it is arguably the world’s most sophisticated robot producer. 
• As I’ve written recently, Japan has a cadre of elite, global businesses – Sony, Nintendo, Toyota and more - that could generate exceptional returns over the long term. These companies are core holdings in the Platinum Japan Fund. 

US-Japan relations: an overlooked advantage

In 2025, every country is navigating a global trade structure in flux. Since 1945, Japan has been America’s most important Asian ally. Perhaps more importantly, it is deeply integrated into the US economy: 
 

• Japanese investors hold over a trillion dollars’ worth of US government debt. 
• They hold over US$2.5 trillion in US stocks. 
• American-based Japanese firms reinvest their earnings in the US at far greater rates (around 70%) than their nearest comparators.²

The recent US/Japan trade agreement may deepen this interconnection, with the Japanese promising to invest US$550 billion into the US and the Americans trimming threatened auto tariffs. Toyota shares surged 13% on that announcement.³

America’s heartland, remade in Japan

The core of President Trump’s trade policy is to bring manufacturing back to the US and to weaken Chinese dominance in key industries. That makes Japan a natural partner. 

We hold companies like Keyence (factory automation), Fanuc (robotics), Daifuku (logistics automation) and DMG Mori (machine tools). They’re all businesses that are essential to retooling America industry and reshoring American manufacturing.
 
In short, investing in Japan in 2025 offers investors access to world-class businesses and an economy likely to profit from – rather than be damaged by – US trade policy. 
 

• Learn more about the Platinum Japan Fund. 
• Want to invest with Platinum?

 
Sources:

1. Nikkei 225 Index, Source: Factset to 1 September 2025
2. For more on US/Japan economic relations see www.hudson.org/trade/negotiating-us-japan-trade-deal-thats-good-america-riley-walters
3. See www.discoveryalert.com.au/news/new-trade-agreements-us-japan-2025/