Japan Stock Market Valuations and Expected Future Returns

Updated at Mon, 27 Jan 2020 20:30:07 -0600
Country: Japan (updated daily) check out Global Overview for detailed methodology.

Ratio of total market cap over GDP: Maximum - 361%; Minimum - 56%; current - 167%
Expected future annual return: 1.1%

ETF Used for dividend yield: EWJ (Yield=1.84%)
Market Index used: Nikki225
Current Annual GDP: $4,761 billion US dollars or 523,218 in billions of national currency (GDP in Local Current Prices Annual Growth=1.31%)
Data since year 1984

Japan Historical GDP Growth

Historical GDP of Japan in billions of national currency. The GDP in local current prices has grown at the annual rate of 1.31% over the past 8 years. Please note this growth rate includes the effect of price inflation and it is NOT the real GDP growth rate. Current Annual GDP: $4,761 billion US dollars or 523,218 in billions of national currency.

Japan GDP (Billion, National Currency)

Historical Stock Market Cap

Historical total market of Japan in billions of national currency. This value is normalized using the data published by WorldBank. Nikki225 is used for the normalization. Use Nikki225 as index, data goes back to 1984.  Annual GDP data from IMF, back to 1980, in billions Yen.

Japan Total Market Cap (Billion, National Currency)

Historical Ratio of Total Market Cap over GDP (%)

The current ratio of total market cap over GDP for Japan is 167%. The historical high was 361%; the historical low was 56%. If we assume that the ratio will reverse to the historical mean of 140% over the next 8 years, the contribution to expected annual return is -2.1%. This is the detailed historical chart of the ratio.

Japan Ratio of Total Market Cap over GDP (%)

Predicted and Actual Returns

From the equation presented on the U.S. market valuation page,

Investment Return (%) = Dividend Yield (%) + Business Growth (%) + (Re/Rb)(1/T)-1

We can compute the predicted and actual returns of the Japan stock market over a given time period, T. In the calculation, we set T to equal eight years, the approximate length of a full economic cycle. The calculated results are presented in the chart below. The green line indicates the expected, or predicted return if the market ratio trends near the average ratio of 140% over the next eight years.

The blue line indicates the actual, annualized return of the Japan stock market over eight years. We use “Nikki225” to do the actual return calculation. We can see the calculations largely predicted the trend in the stock market as the blue line is closely parallel to the green line.

Predicted and Actual Returns of Japan


The stock market of Japan is expected to return 1.1% a year for the coming years. This is from the contribution of economic growth in local current prices: 1.31%, Dividend Yield: 1.84% and valuation reverse to the mean -2.1%.

This is the projected return of the stock market in Japan relative to other countries. Click on each bar in the chart to go to other countries:

You can go here to see what international stocks Gurus are buying.

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