Japanese valuations remain attractive despite strong performance

Despite good absolute performance in the Japan equity market year-to-date, valuations remain attractive both on a cash earnings yield and a price-to-book basis compared to other major markets.

Importantly, we observe that improved trend earnings in Japan are being delivered and not yet being priced by the market, at a time when leverage has fallen materially. Corporate investments have fallen to converge with other markets, and non-financial companies' return on assets have risen to converge with other markets. On a trend basis, corporate margins have continued to rise. The recent Corporate Survey from Japan's Ministry of Finance suggests that company profits continue to grow as a result of robust sales, with non-manufacturing leading this trend. Employment conditions co...