Japan Is Not Coming Back. It Is Changing.

"The four most dangerous words in investing are: 'This time it's different' "

– Sir John Templeton

1990.

Japan dominates global markets.

The Nikkei 225 has reached levels that seem untouchable, with around 45% of the world’s equity value sitting in a single country.

Japanese equities trade at a price-to-earnings ratio around 60. At its peak, the grounds of the Tokyo Imperial Palace are estimated to be worth more than all of California's real estate combined. Driven by cheap credit, heavy speculation, and low interest rates, prices rise far beyond what the underlying businesses are worth.

Our old hands reading this know what I'm talking about: Japanese warrants. What an exciting time that was back then! For anyone who doesn't know what I'm talking about: Just ask your Boomer colleagues.

What follows is not a correction, but one of the most consequential collapses in financial history.

And then – nothing happens for 34 years.

Yes, you heard it right, it took the Nikkei 225, Japan’s main stock index 34 years to return to its previous all-time highs. Yes, “ETF and Chill” actually worked a bit different in Japan.

A lot has changed over three decades, and the Japanese stock market seems set for new beginnings. During a year of working and studying in Asia, I had a front row seat to something most European investors are missing entirely. Or maybe you think it's too far away to care. Or maybe you're scared because the stock market is open while you're sleeping.

But is this time different?

Before we can answer that question, we need to understand what happened during those 34 years.

First, get your Friday morning coffee.

And now, let’s dig in.

Chart 1: Japan will take over the world. A boom-and-bust cycle with long-lasting repercussions.

Nikkei’s Lost 34 Years – The world that just ended: negative rates, deflation and near-zero growth

The bubble bursts.

Investors are left with almost nothing and one of the world's biggest economies is on the verge of collapse. But the real problem is not the crash — it's what the crash reveals.

Companies are loaded with debt, and asset prices fall so rapidly that banks soon hold worthless collateral. A financial system built on the assumption that prices only go up.

As history so beautifully teaches us. They don't.

The Bank of Japan cuts interest rates. Then again. And again. By the late 1990s they hit zero. Nothing works. Consumers have lost confidence and Japan faces its next major challenge.

Deflation.

Falling prices sound like a good thing. They aren't. Once it starts, deflation is a death spiral. Why buy today what will be cheaper tomorrow? Companies stop investing. Prices fall further. Entire careers were built in a country where growth was the exception, not the rule.

Japan's economy didn't collapse. It just stopped. GDP grew below 1% per year from 1991 to 2023.

Walking through Tokyo, you would never guess it. Spotless streets. Perfect service. Bullet trains running to the second. But behind that surface, the numbers told a different story.

Companies hoarded cash instead of investing. Japanese companies owned each other's stock — nobody had any incentive to demand better. It became normal to trade below book value. The corporate sector became allergic to risk.

The problem didn’t end there. In Japan, more diapers for adults are sold than for children. A shrinking workforce inherits the bill. And what does that mean for an already struggling economy?

Even less growth.

A quick one for the book-club shelf, then straight back to the story: In Jared Diamond's book, Upheaval, Japan is covered in Chapter 3, titled "The Origins of Modern Japan". Diamond traces how Japan swung from isolation to radical modernization, and how it has faced down national crises before. It has done this dance before.

For 34 years, the answer was obvious. Don't touch Japan.

Then in 2023, a lot changed. And I mean a lot.

And almost nobody noticed.

Chart 2: arvy’s Book Club, Upheaval by Jared Diamond (Chapter 3: Japan)

How Japan’s Economy is changing and why this Time could be different

The Tokyo Stock Exchange drew a line in the sand. Companies trading below book value had to disclose concrete plans to improve capital efficiency. Or face consequences.

Another change is that Japanese management began acting in the shareholders' best interests. Yes, that wasn't the case before.

And it worked.

Share buybacks surged to record levels. Dividends increased. Companies committed to profitability targets. But corporate reform only goes so far without political will behind it. And that political movement is embodied by one woman.

Sanae Takaichi.

Takaichi became Japan's first female prime minister in late 2025. She dominated Asian headlines for weeks and clearly means business.

Her agenda?

Continued loose fiscal policy — backing the recovery with government spending.

In March 2024, the Bank of Japan did something it had not done in 17 years: it raised interest rates. Then it did it again. And again. The policy rate now sits at 1% — the highest since 1995.

Not only is credit getting a price again — inflation is returning and wages are rising. People are beginning to believe in tomorrow again.

Then there is the yen. Near 160 per US dollar, it sits close to multi-decade lows, not far from the weakest level since 1986. A weak yen makes Japanese goods cheaper abroad and hands foreign investors a currency discount on an already attractively valued market.

A side note for Swiss globetrotters: The CHFJPY has risen from 100 to 200 over the past six years. So it might be worth considering a vacation in the Land of the Rising Sun...

Thierry and I were just there: Yes, it’s worth it. Big time.

P.S.: Would you like our 3-week Japan itinerary? Send us a DM with “JAPAN”—we’ll send you the itinerary.

Toyota. Sony. Nintendo. These companies survived the lost decades by selling to the world. Now the domestic economy is catching up too.

Three companies stand out. Three different ways to be right.

Here is why.

Japan is Changing. Three Potential Beneficiaries

Murata Manufacturing (6981.T)

Without Murata, your iPhone doesn't turn on. Your laptop doesn't charge. Your electric car doesn't drive. Yet there's a high chance you have never heard of it before.

MLCCs are tiny electronic components that regulate electrical energy. No electronic product works without them.

Murata makes 40% of the world's supply.

That is not a market position. That is a moat.

AI datacenters need premium MLCCs. Lots of them. Production cannot keep up. When the world's most important infrastructure buildout hits a bottleneck — Murata does not need to negotiate. They set the price.

The moat is intact. The cycle is turning. The currency is helping. And the world is still building AI infrastructure.

Without Murata, none of it works.

Food & Life Companies (3563.T)

After a year of living in Asia there are plenty of things I would like to bring to Switzerland. Sushiro is one of them (chart 4). If you have been to Japan or Southeast Asia before, you’ve probably heard of it. You order sushi on a tablet and less than a minute later you get it delivered on a conveyor belt.

Cheap, fast and a lot of enjoyment.

What sounds like a fun night, or quick snack is actually one of the most efficient restaurant businesses in the world. The concept is simple — great sushi at prices anyone can afford, served fast. With over 600 outlets in Japan alone, Sushiro makes up over 90% of Food & Life Companies’ revenues.

Consumer spending in Japan is returning, benefiting domestic consumer goods. Everybody is talking about Fast Retailing aka Uniqlo, but Food & Life Companies often goes under the radar. And there is a simple reason for that.

The international expansion is just getting started. China is loving Sushiro and that reflects in the numbers of the international business section.

61.8% revenue growth year on year.

Asia loves it, and I can tell you, so will you. Now Sushiro is targeting a new market — the United States of America. An 830m2 flagship store is planned in a prime location in Manhattan. In a society where health consciousness is growing, Sushiro is ready to compete with the likes of McDonalds or Burger King, with underlying growth of the domestic business fuelling the internationalisation strategy.

And the “Good Chart” supports the “Good Story”. A strong trend has been forming over the past two years.

The queues across Asia in front of Sushiro Stores are not a coincidence.

They are a signal of what’s to come.

Japan Post Bank (7182.T)

Our third business of interest could not be more different. No queues. No conveyor belts. No Manhattan flagship. Just one of the most direct ways to bet on Japan's structural recovery.

Japan's biggest retail bank.

Operating through the nationwide post office system, Japan Post Bank sits on one of the largest deposit bases in the world. For decades that was not an advantage. It was a curse.

Rates at zero meant trillions of yen earning almost nothing. The deposits were there. The customers were there. The network was there. But the engine had no fuel.

Then the Bank of Japan moved. For the first time in 17 years.

Every rate hike is automatic margin expansion. No new products. No new customers. No new strategy needed.

Japan healing is the strategy.

If Japan's structural recovery is genuine — Japan Post Bank does not just benefit from it.

It is the purest bet on it.

Chart 3: Comparison of Stock returns

The arvy Playbook for Japan

So, is this time different?

Templeton warned us those are the four most dangerous words in investing. And he was right — they've bankrupted more investors than any crash.

But he left out something. There is a fifth word, just as dangerous, that costs you nothing and everything at once:

"Never."

Never touch Japan. For 34 years, that was the smartest trade on Earth. The crowd that said "never" was right for three decades.

They are about to find out what it costs to be right for too long.

The medicine and the poison are the same thing. Inflation heals Japan — or kills the recovery in its crib. The Bank of Japan holds the needle. We don't know the dose.

So, we watch. Japan is back on our radar, and it is not leaving anytime soon. The "Good Stories" are here. The "Good Charts" are forming. The only question left is the one Templeton would ask:

Is this the time it's finally different — or the most expensive lesson of all?

The next move is Japan's. The stage is theirs.

We'll be watching while you sleep.

Chart 4: Visiting Sushiro Tokyo during my exchange program in December 2024