The Japanese economy is known as a global powerhouse, driven by cutting-edge innovations in electronics and automotives. However, earlier this year, Japan slipped behind Germany to become the fourth-largest economy in the world, as its gross domestic product (GDP) was pressured into recessionary territory by a softer currency and aging population. In fact, Japan has consistently struggled to drive meaningful economic growth like the kind it enjoyed in the 1970s and '80s. In the ensuing years, the benchmark Nikkei 225 Index ($NKY) remained stuck, for what became referred to as the “Lost Decades," beneath its longtime peak from December 1989.
However, the Japanese stock market is back on the path to new highs in 2024 - and weakness in the yen (USDJPY) is a key driver. As the weak yen looks set to boost earnings for exporters, sentiment among Japanese manufacturers improved in the June quarter, coming in higher than the economists' forecast, per the closely followed quarterly tankan survey by the Bank of Japan. Against this backdrop, the Nikkei 225 is comfortably outperforming the S&P 500 Index ($SPX) in 2024, with Japan's equity benchmark up 22.3% YTD, compared to the S&P 500's 16.7% rise.
