Compelling Valuations in Japan

Japanese equities are currently trading at compelling valuation levels compared to other developed equity markets around the world and relative to their own historical averages. We believe the Japanese market deserves a closer look.

June 2019

  • Masakazu Takeda
    Masakazu Takeda, CFA, CMA
    Portfolio Manager
  • Tadahiro Fujimura
    Tadahiro Fujimura, CFA, CMA
    Portfolio Manager

1. Attractive Price-to-Earnings Multiple

The price-to-earnings multiple, or P/E ratio, is the most common measure used to value equities. Japanese largecap equities, as represented by the Tokyo Price Index (TOPIX), are currently trading on a P/E multiple of 12.5x forward earnings, the second lowest level among the G7 developed equity markets around the world and 30% lower than the U.S.

2. Low Price-to-Book

On a price-to-book basis (P/B), Japanese equities are also offering investors great value compared with other global developed equity markets. TOPIX is trading at just 1.1x book value, a third lower than the average among the top developed equity markets and almost two-thirds lower than the U.S.

3. Japan Small-Caps at a Discount

Small-cap Japanese companies are also trading at a discount to international peers. Small-cap stocks in Japan are trading on just 13.5x forward earnings, and as a point of reference, a 46% discount to U.S. small caps trading at 25x.


4. Japan’s Attractive P/E Relative to History

Japanese equities have a history of trading at relatively high P/E multiples. However, Japan’s current forward P/E multiple of 12.5x is the lowest it has been in six years and represents an almost 22% discount to its 10-year average of 16x.



We believe Japan’s growth story is just starting to unfold. Following the advent of Abenomics, many Japanese companies are experiencing higher profitability due to corporate restructuring, better governance, and a more competitive currency. With Japanese equities currently offering attractive valuations compared to G7 developed country equity markets and relative to history, we believe
Japan deserves a closer look as a component of an investor’s portfolio.