The Nikkei index has undergone a fundamental shift in its constituent stock structure in recent years, with technology-related companies now accounting for 56% of the index's weighting, compared to only 35% in 2022. As the AI-driven tech stock rally begins to cool, the previously rapid rise in the Japanese stock market has also slowed.
However, despite volatility in markets like South Korea and Taiwan, which are also heavily reliant on tech stocks, many analysts believe that the continued attractiveness of Japanese corporate earnings growth and valuations, along with market revaluation following the end of a long period of deflation, will continue to support the long-term bullish logic of the Japanese stock market.
Vincenzo Vedda, Global Chief Investment Officer at asset management firm DWS, stated that the company has downgraded its semiconductor sector rating to "neutral." He noted, "After the Philadelphia Semiconductor Index rose by approximately 90% in the second quarter, we are becoming more cautious about the short-term outlook for semiconductors." He also warned that the risk of future capital expenditure cuts should not be ignored if large cloud computing companies find that the commercialization of their AI investments is slower than expected.
However, most institutions maintain an optimistic view of the Japanese stock market. The CEO of the Japan Exchange Group (JPX) stated that the Japanese stock market has strong "resilience." He stated this week that "the market rebounds quickly after each pullback, and investors typically don't chase highs but buy during corrections." Citigroup Tokyo strategist Ryota Sakagami also believes that while tech stocks have risen extremely rapidly since 2026, raising concerns about a bubble among some investors, industry EPS expectations have also been revised upwards rapidly. He pointed out that the current rise in tech stock prices relative to earnings expectations is still in a "healthy growth" range, therefore "it doesn't necessarily mean the market is overly optimistic or has a bubble." In terms of valuation, the Nikkei 225 index's current forward 12-month price-to-earnings ratio is approximately 22 times, still significantly lower than the over 60 times level during Japan's bubble economy period. Furthermore, structural reforms in Japan's capital markets are also a significant reason for attracting overseas funds. (Nikkei News)
