are japanese stocks undervalued? 2026 analysis

This article answers “are japanese stocks undervalued” by reviewing market-wide metrics, company-level price-to-book evidence, sector and size dispersion, drivers for re-rating, and key risks throu...

2025-12-22 16:00:00

By EtherLingo

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Are Japanese stocks undervalued?

Are japanese stocks undervalued is a common search for investors weighing Japan exposure after multi-year moves in the Nikkei and corporate reforms. In this article we define what “undervalued” means for a national equity market, review cross-market valuation metrics and recent readings (2024–2026), summarize company-level price-to-book evidence, examine sector and market-cap dispersion, discuss supporting drivers and material risks, and explain practical, repeatable steps for investors to assess undervaluation themselves.

This guide draws on primary market research and media reporting through January 2026 and is informational only—not investment advice. It also points to how investors can use exchange features and wallet services such as Bitget when implementing allocation or trading decisions.

What "undervalued" means for a national equity market

When investors ask “are japanese stocks undervalued” they generally mean one of two things:

Relative undervaluation: Japanese equities trade at lower valuation multiples (P/E, P/B, CAPE) or lower market-cap-to-GDP ratios versus developed-market peers after adjusting for growth, inflation and currency; or
Absolute undervaluation: Aggregate or sizeable segments of the market trade below what fundamentals suggest is fair value—often signaled by P/B < 1, depressed forward earnings multiples, elevated dividend yields, or low CAPE compared with long-term history.

Both perspectives matter. A market can be relatively cheap but still expensive in absolute terms (and vice versa). The practical question for investors is whether current prices leave room for durable upside once macro, corporate governance and currency scenarios play out.

Key valuation metrics and recent readings

Common metrics used to judge whether a national market is undervalued include:

Trailing price-to-earnings (P/E)
Forward or consensus P/E
Shiller cyclically adjusted P/E (CAPE)
Price-to-book (P/B)
Dividend yield and dividend payout trends
Market-cap-to-GDP (Buffett indicator-style comparisons)

As of the most recent research cited here:

Siblis Research (Japan Stock Market Valuation, 2025) reported that aggregate trailing P/E for Japan sat below several global peers and below late-2010s peaks, with a 2025 trailing P/E in the low-to-mid teens and a CAPE ratio that remained modest versus long-run extremes. As of 2025 Siblis noted forward P/E compression relative to recent rallies, indicating mixed signals for valuation.
By early 2026 headline indexes reached cyclical highs. As of January 2026, media coverage noted record-level index performance while some valuation metrics still looked moderate versus historical extremes (see Nasdaq/Zacks, Jan 2026 reporting on record highs and FX drivers).
Dividend yields across the TOPIX and Nikkei universes have moved higher in recent years as companies returned more cash via buybacks and dividends, a trend many investors cite when judging fair value.

Taken together, valuation metrics show Japan is not uniformly “cheap” on every measure, but neither does it look uniformly expensive: headline price momentum coexists with pockets of low P/B and low consensus valuations in segments of the market.

Price-to-book evidence and company-level distress

As of 2026-01-11, according to Nikkei Asia, roughly one in three Japan-listed companies traded below book value. That headline—"1 in 3 Japan stocks trade below book value"—is an important data point for the question “are japanese stocks undervalued.”

What P/B < 1 can mean:

Possible undervaluation: Assets on the balance sheet are worth more than the market assigns to the equity—this can signal takeover targets, restructuring opportunities, or simple market neglect.
Distress/structural concerns: Low book value can reflect persistent operating losses, asset impairment risk, inventories or receivables that may not be realizable at book value, or sector structural decline.
Accounting and sector effects: Financial companies, asset managers and heavy-industrial firms often carry large book values; conversely, tech or IP-heavy firms may have little book value despite strong cash flows.

Nikkei Asia’s finding underlines that many individual Japanese companies are priced cheaply on a balance-sheet basis. However, cheap P/B ratios require company-specific analysis to differentiate genuine value from justified discounting.

How to read the "one in three" headline

It is a company-level count—not an index-weighted statement. Major exporters and some large caps can dominate index performance while many small names remain below book.
P/B-based screens are a useful starting point for bottom-up work but must be cross-checked with earnings power, free cash flow, and governance.

Sector and market-cap differences

Valuation dispersion across sectors and market-cap segments is a core reason the headline question—are japanese stocks undervalued—has no single answer.

Large-cap exporters: A weak yen in 2022–2025 improved reported profits for many exporters; several large caps have led headline gains and at times trade at higher multiples justified by stronger earnings growth or global demand exposure.
Small- and mid-caps: Research from HennessyFunds (Jul 2024) and Morningstar (Apr 2024) highlights that many smaller companies remain undercovered by analysts and underowned by global funds, creating opportunities where P/E and P/B remain low despite improving fundamentals.
Financials and domestic cyclicals: Regional banks, insurers and domestically focused cyclicals often trade cheaply relative to global peers but are more sensitive to local rates and domestic demand.
Technology and growth pockets: While Japan has fewer globally dominant tech growth names than some peers, specific structural-growth firms can command premium multiples.

Data sources such as TradingView and Simply Wall St show regular lists of the “most undervalued” Japanese stocks based on screens for low P/E, high free-cash-flow yield or favorable forward-growth odds—underlining that undervaluation is often idiosyncratic.

Drivers of valuation — reasons Japan may be undervalued (or ripe for re-rating)

Several structural and cyclical drivers can justify a view that segments of the Japanese market are undervalued and capable of a re-rating.

Corporate governance and shareholder returns

Reforms such as updates to the Stewardship Code and the Corporate Governance Code have prompted many listed firms to increase buybacks, dividends and more efficient capital allocation.
As of 2025–2026, GMO and other asset managers cited buyback and dividend acceleration as a reason to overweight Japan, arguing that improved shareholder returns narrow the discount Japanese equities historically traded at vs. global peers.
Better governance reduces the "holding company" discount, improves return-on-equity (ROE) prospects, and attracts active global capital—factors that can raise valuation multiples over time.

Earnings growth and balance-sheet improvements

Siblis Research and GMO documented improving EPS trends into 2024–2025 for many sectors, supported by cost discipline, repatriation tailwinds and FX benefits for exporters.
Stronger balance sheets across many corporates—less leverage, more cash—reduce downside and make low P/B readings more credible as buying opportunities.

Monetary policy, inflation and the yen

As of late 2025, central-bank drift toward policy normalization in Japan and globally was a driver of market re-pricing. Invesco’s Nov 2025 investment outlook highlighted that BoJ policy changes and global rate differentials materially impact valuations.
A weak yen boosts reported profits for exporters and has been part of the run-up in many large-cap sector leaders (Nasdaq/Zacks commentary, Jan 2026). If the yen remains weak, exporter earnings can sustain higher multiples; if the yen reverses, those gains can shrink quickly.

Macro backdrop: wages, domestic demand and policy

A pickup in wages and domestic demand—if sustained—supports earnings for domestically oriented companies, reduces deflationary pressure and supports higher valuations.
Government and corporate policy aimed at productivity improvements and labor participation can shift long-run growth expectations, affecting fair-value multiples.

Risks and counterarguments — reasons Japanese stocks might NOT be undervalued

While supportive forces exist, there are clear risks and counterarguments to the claim that Japan is broadly undervalued.

Concentration and sentiment-driven rallies

Some commentary (AInvest, May 2025) warns that recent index gains are concentrated among a narrow leadership group; if sentiment reverses or rotation occurs, headline indexes could suffer while the rest of the market remains stagnant.

Yen volatility and export sensitivity

Sudden yen strength can materially reduce JPY-reported exporter profits and reverse recent gains. Currency is a dominant risk for any investor exposed to large-cap exporters.

Bond-market fragility and public finances

Concerns over Japan’s large public debt and bond-market sensitivity create systemic tail risks. AInvest and other cautionary voices note that bond-market stress could raise funding costs, pressure domestic financials, and have knock-on effects for equities.

Structural challenges: demographics and productivity

Japan’s aging population and slow productivity growth are long-term headwinds to sustained earnings expansion. These structural factors cap potential long-run multiples for domestically reliant sectors.

Evidence by segment: who appears undervalued?

A practical way to answer “are japanese stocks undervalued” is to segment the market and look for consistent patterns.

Small- and mid-cap stocks

HennessyFunds and Morningstar point to undercoverage and underownership of small- and mid-cap Japanese companies. Many of these firms trade at low P/E and P/B multiples despite reasonable fundamentals—making them candidates for bottom-up active managers.
Simply Wall St’s screens (summary: 95 Japanese stocks flagged as undervalued based on future growth metrics) provide examples of individual companies that, on certain assumptions, trade below justified values.

Financials and domestic-focused companies

Regional banks, insurance companies and domestically focused industrials can appear cheap on traditional measures but are sensitive to yield curves, credit cycles and domestic demand.

Exporters and large-cap beneficiaries of FX

Large exporters have often led the market higher thanks to yen depreciation and stronger global end-demand; their valuation now depends heavily on the currency outlook and sustainability of margins.

How to assess undervaluation — practical methodology

Investors who want to judge whether Japanese equities (or segments thereof) are undervalued should apply a disciplined, multi-factor approach.

Use multiple valuation metrics and timeframes

Combine trailing P/E, forward P/E, CAPE and P/B rather than relying on a single ratio.
Use 3–5 year timeframes for earnings normalization and stress-test assumptions.

Adjust for currency and sector composition

Compare currency-adjusted returns and earnings; evaluate exporters and domestic firms separately.
When benchmarking to global peers, align sector composition to avoid apples-to-oranges comparisons.

Incorporate governance and capital-return trends

Factor in buybacks, dividends and cross-shareholding unwinds. Rising shareholder returns can justify a higher multiple.

Scenario and sensitivity analysis

Produce scenario models that vary the yen, consensus EPS and interest rates. For example, test valuations under: weak-yen continuation, moderate yen appreciation, and sharp yen appreciation.
Evaluate downside under a bond-market stress scenario that raises domestic rates by 100–200 bps.

Investment implications and strategies

The answer to “are japanese stocks undervalued” informs how investors position.

Active stock picking and bottom-up research

Because undervaluation appears concentrated in undercovered small- and mid-caps, active managers and bottom-up stock pickers often have an edge. HennessyFunds emphasizes the opportunity set in these segments.
Tools like detailed earnings-quality checks, owner-operator screening and governance assessments are essential for separating value traps from genuine bargains.

ETFs and allocation choices (hedged vs unhedged)

Passive exposure via ETFs is an efficient way to obtain market exposure. Investors should consider currency-hedged versions when seeking to reduce yen volatility’s impact on returns—especially if their liabilities are in another currency.
When using an exchange to implement ETF or equity trades, users can consider Bitget for execution and Bitget Wallet for custody of related crypto-native assets, where applicable. Bitget’s platform can serve investors looking for execution efficiency when trading instruments that are available through regulated product wrappers.

Hedging currency and macro risks

Common hedging approaches include currency forwards, options and hedged ETFs. Investors who expect potential yen appreciation may prefer hedged exposures to protect dollar/eur-denominated returns.
Hedging decisions should be costed into expected returns; in some scenarios the cost of hedging can outweigh the benefit.

Recent empirical findings and headline data (2024–2026)

Key datapoints to inform the question “are japanese stocks undervalued”:

As of 2026-01-11, according to Nikkei Asia, about one in three Japan-listed companies traded below book value—an important sign of company-level cheapness.
Siblis Research (2025) found trailing P/E and CAPE for Japan remained moderate versus some historical extremes, with a 2025 trailing P/E estimate in the low-to-mid teens (source: Siblis Research, Japan Stock Market Valuation, 2025).
GMO (Mar 2025) listed three structural reasons to overweight Japan: corporate governance reforms, EPS improvement and shareholder-return acceleration (buybacks/dividends).
Invesco (Nov 2025) emphasized BoJ policy normalization and corporate reforms as key 2026 drivers for valuations.
Morningstar (Apr 2024) and Simply Wall St maintain databases of individually identified undervalued names under analyst and model-based frameworks.
HennessyFunds (Jul 2024) highlighted small- and mid-cap opportunities deriving from undercoverage.
Nasdaq/Zacks reporting (Jan 2026) cited record highs for headline Japanese indexes and linked part of the move to a weaker yen and improved corporate profitability.
AInvest (May 2025) sounded caution on concentration risk and bond-market fragility that could undercut equity valuations.

These datapoints illustrate the mixed picture: index-level strength coexists with company-level cheapness.

Balanced answer: synthesizing the evidence

At the aggregate index level, the question “are japanese stocks undervalued” has a mixed answer. Headline indexes reached cyclical highs by early 2026 while several valuation metrics (trailing P/E, CAPE) remained modest relative to some global extremes—supporting the view that Japan is not frothy across every measure. At the same time, roughly one-third of listed companies trading below book value and a large cohort of undercovered small- and mid-caps indicate that many individual Japanese stocks still appear undervalued on standard screens.

Whether Japan is “undervalued” depends on three primary inputs:

Currency outlook—continued yen weakness supports exporter earnings; yen strength can reverse gains quickly.
Corporate-reform continuity—ongoing buybacks, dividends and governance improvements support multiple expansion.
Investor time horizon—idiosyncratic undervaluation in small caps often requires a longer holding period for realization.

Investors should therefore avoid blanket conclusions and instead apply segment-level and scenario-based analysis.

How to proceed (practical next steps)

Start with top-down allocation: decide how much Japan exposure you want based on your risk tolerance and macro view of the yen and global growth.
Use bottom-up screens to identify P/B < 1 names, high free-cash-flow yields and improving ROE—then apply governance and earnings-quality filters.
Consider ETFs for broad exposure and choose hedged vs unhedged versions based on your currency view; when executing, use trusted platforms (for order execution and custody consider Bitget for spot and derivative products where appropriate).
Run scenario tests for yen moves and interest-rate shocks; ensure position sizes reflect potential volatility.
Monitor corporate action flows—buybacks and dividends—because they materially affect per-share economics and market perception.

Next steps and call to action

If you are assessing Japan as part of a multi-asset portfolio, combine the top-down valuation context above with bottom-up company work and scenario testing. For execution and access to listed funds or instruments, consider Bitget’s trading features and Bitget Wallet for custody of related digital assets. Explore Bitget tools to implement allocation, hedging or trading strategies in a user-friendly environment.

Further updates require continuous monitoring of BoJ policy, yen moves and corporate cash-return announcements; revisit valuation screens regularly to capture changing fundamentals.

Notes and caveats: This article synthesizes the sources listed above and presents neutral, factual analysis. It is not investment advice. Investors should perform up-to-date due diligence with current market data before making allocation decisions.

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.