Buffett Indicator: Japan Stock Market Valuations and Expected Future Returns
Updated at Sun, 24 Jan 2021 20:30:05 -0600
Country:
Japan (updated daily) check out
Global Overview for detailed methodology.
The Stock Market is
Significantly Overvalued.
Ratio of total market cap over GDP: Recent 20 Year Maximum - 190.02%; Recent 20 Year Minimum - 54.38%; current -
190.02%Expected future annual return:
-4.4%ETF Used for dividend yield:
EWJ (Yield=
1.36%)
Market Index used:
Nikki225Current Annual GDP:
$5,456 billion US dollars or
565,865 in billions of national currency (GDP in Local Current Prices Annual Growth=
1.52%)
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
1.52% 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:
$5,456 billion US dollars or
565,865 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
190.02%. The recent 20 year high was
190.02%; the recent 20 low was
54.38%. If we assume that the ratio will reverse to the recent 20 years mean of
103.78% over the next 8 years, the contribution to expected annual return is
-7.28%. This is the detailed historical chart of the ratio.
Japan Ratio of Total Market Cap over GDP (%)
Based on these historical valuations, we have divided market valuation into five zones:
Ratio = Total Market Cap / GDP |
Valuation |
Ratio ≤ 73% |
Significantly Undervalued |
73% < Ratio ≤ 93% |
Modestly Undervalued |
93% < Ratio ≤ 114% |
Fair Valued |
114% < Ratio ≤ 135% |
Modestly Overvalued |
Ratio > 135% |
Significantly Overvalued |
Where are we today (2021-01-25)? | Ratio = 190.02%, Significantly Overvalued |
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 recent 20 years average ratio of 103.78% 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
Conclusion
The stock market of
Japan is expected to return
-4.4% a year for the coming years. This is from the contribution of economic growth in local current prices:
1.52%, Dividend Yield:
1.36% and valuation reverse to the mean
-7.28%.
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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