Will the 40,000-point level break new highs again? The 2025 Japanese stock investment landscape and 7 must-watch stocks

The Nikkei 225 Index broke through 40,000 points to 40,487 on June 30, 2025, reaching a nearly one-year high. The logic behind this rebound warrants in-depth analysis: Market revaluation of Japanese companies, driven by structural advantages. When global markets plunged in April due to tariff fears, the Nikkei’s P/E ratio briefly fell to 12 times, making it relatively cheaper than major international markets. As pessimistic expectations were revised upward, the P/E ratio gradually recovered to around 13 times, attracting international capital to reallocate assets. The corporate governance reforms on the Tokyo Stock Exchange also played a role, with more companies willing to increase dividends and implement share buybacks.

Investment Logic of Japanese Stocks: Can the New Highs Continue?

There are three core factors supporting this rally: valuation reset, capital inflows, and improvement in fundamentals. Overseas funds are reallocating amid the trend of “reducing holdings of US stocks,” with the Japanese stock market becoming an important destination due to its relatively low valuation. The recovery of the global tech industry chain has driven strong performance in Japanese semiconductor and precision equipment stocks, further boosting market confidence.

Notably, Warren Buffett has been deploying in Japan’s five major trading companies (Mitsubishi Corporation, Mitsui & Co., Itochu Corporation, Sumitomo Corporation, Marubeni) since 2019, increasing holdings in June this year. At the Berkshire Hathaway annual meeting, Buffett publicly stated that he would “not sell these stocks for 50 years,” and this patient investment declaration itself is the best proof of market confidence.

However, whether the market can sustain this momentum depends on two major variables: the direction of the Bank of Japan’s monetary policy adjustments and the global investors’ risk appetite shift. If the BOJ resumes rate hikes, financial stocks could see valuation improvements; but if the global economy continues to slow, the rebound in Japanese stocks may be limited.

How to Invest in Japanese Stocks? An Overview of Three Investment Channels

Investing directly in the index is the simplest

For investors seeking certainty of returns, direct investment in the Nikkei 225 is the most straightforward approach. The index covers the 225 top-listed companies in Japan’s stock market, benefiting as the overall Japanese stock market rises. In the first half of this year, the Nikkei 225 fell to a yearly low of 31,136 points amid global tariff fears, then rebounded strongly driven by valuation recovery and fundamental improvements. While it’s uncertain if this rebound will continue, Japanese stocks have at least shaken off excessive caution and are worth including in asset allocation.

Investing in Japanese companies via US stock channels

Well-known Japanese companies like Toyota ™, SoftBank (SFTBY), Sumitomo Mitsui (SMFG), Nintendo (NTDOY) issue American Depositary Receipts (ADRs). With a US brokerage account, investors can trade conveniently, and the performance of these ADRs generally tracks Japanese domestic stocks.

Taiwan brokerage firms offering repurchase trading

Yuanta Securities and Fubon Securities provide repurchase services, but the process is relatively complex, with purchase limits and higher fees. Investors should inquire directly with the broker for detailed procedures.

Seven Selected Japanese Stocks: From Hidden Champions to Gaming Giants

Hidden Champion in Industrial Automation: Keyence (6861.JP)

Keyence is renowned in industrial automation, founded in Osaka in 1974 by Takeshi Takizaki. It adheres to a “design-oriented” philosophy, focusing on high-value sensors, vision systems, laser marking equipment, and other products. Although it does not engage in manufacturing, it sells globally through a direct sales network in 46 countries.

Its products span three major areas: industrial automation (sensors, barcode readers), precision measurement (digital microscopes), and process control (laser processing equipment). It is ubiquitous in high-end manufacturing sectors such as semiconductors, automotive, and biopharmaceuticals, and is a standard component of smart factories.

For FY2024, revenue reached 1.059 trillion yen, operating profit was 549.78 billion yen, and net profit was 398.66 billion yen. Wall Street analysts’ 12-month target price averages 74,282.41 yen, with a high of 80,075.16 yen. Compared to the current stock price of 56,800 yen, potential upside is 30%.

Leading semiconductor equipment manufacturer: Tokyo Electron (8035.JP)

Tokyo Electron’s market cap has reached 12.6 trillion yen, making it a key supplier in the global semiconductor supply chain, providing wafer cleaning and deposition equipment to giants like Samsung, TSMC, and Intel. For FY2024, consolidated revenue was 2.43 trillion yen, up 32.8% year-over-year. Overseas sales grew 36.2% to 2.24 trillion yen, accounting for 92.2% of total revenue.

Cost control was excellent, with gross profit rising 38.1% to 1.15 trillion yen, gross margin improving to 47.1%. Operating profit surged 52.8% to 697.32 billion yen, with an operating margin of 28.7%. Net profit after tax increased 49.5% to 544.13 billion yen, with EPS jumping from 783.8 yen to 1,182.4 yen.

Jefferies analysts maintain a “Buy” rating with a target price of 32,000 yen, showing optimism for the future.

Century-old defense industry giant: Mitsubishi Heavy Industries (7011.JP)

Founded in 1884 as Mitsubishi Shipbuilding, Mitsubishi Heavy Industries has participated in Japan’s industrialization. Today, it is a comprehensive giant spanning aerospace, energy equipment, industrial machinery, and other strategic fields, representing Japan’s highest manufacturing technology.

The company’s outlook is optimistic, with FY2025-26 projected operating profit up 9.6% to 420 billion yen, based on FY2024-25 actual operating profit of 383 billion yen (up 35.6%). Aerospace and defense are expected to see a 40% increase in operating profit, serving as major growth drivers; energy systems are also forecasted to grow profits by 17%.

Wall Street analysts’ 12-month average target price is 3,743.76 yen, with a high of 4,100 yen. Compared to the current stock price of 3,185 yen, potential upside is 17.54%.

New Opportunities in Gaming Software: Nintendo (7974.JP)

Nintendo’s FY2024 revenue was 1.16 trillion yen, down 30.3%; operating profit was 282.5 billion yen, down 46.6%; net profit was 278.8 billion yen, down 43.2%. The decline is mainly due to the Switch entering the late stage of its lifecycle, coupled with the upcoming Nintendo Switch 2 further dampening purchase enthusiasm. North America contributed 44.2% of revenue, Europe 24.5%, Japan 23.6%, and other regions 7.7%.

Despite short-term challenges, market analysts believe the electronic gaming sector is regaining investment appeal. TD Cowen analyst Doug Creutz pointed out that the gaming industry’s growth continues to outpace global GDP, driven by expanding player bases and diversified monetization models (subscriptions, virtual items, seasonal updates). The 12-month average target price from 11 Wall Street analysts is 14,035.27 yen, with a high of 20,780 yen.

Winners in Content Ecosystem Layout: Sony Group (6758.JP)

Sony’s latest quarterly net profit grew 4.6% YoY to 197.7 billion yen, but forecasts for the new fiscal year project a 13% decline, mainly due to US tariff policies. The music and film content divisions are the main profit drivers, benefiting from investments in game studios Bungie and anime platform Crunchyroll.

Hardware sales are under pressure; PS5 sales estimates have been revised downward from 18.5 million units to 15 million. US tariff policies are expected to cut 100 billion yen in operating profit. Sony executives have indicated measures such as diversifying production bases and adjusting pricing strategies. The company is adopting a “soft and hard” strategy, maintaining hardware while accelerating content service transformation.

Wall Street analysts’ 12-month average target price is 4,389.49 yen, with a high of 4,910 yen. Compared to the current stock price of 3,607 yen, potential upside is 21.69%.

Buffett’s Favorite Japanese Trading House: Mitsubishi Corporation (8058.JP)

Mitsubishi Corporation is one of Japan’s five major trading companies and a favorite of Berkshire Hathaway. By the end of June 2025, Berkshire increased its stake in these five trading companies by 1.0% to 1.7%, holding a total of 8.5% to 9.8%. Buffett favors these trading houses for their high capital efficiency, excellent management, and shareholder-oriented approach.

In FY2025, Mitsubishi’s revenue is projected at 18.6 trillion yen (down 4.9% YoY), but pre-tax profit grew against the trend by 2.3% to 1.4 trillion yen, with net profit attributable to the parent at 950.7 billion yen. This demonstrates the resilience of Japan’s general trading companies.

Investors are advised to wait for stock prices to correct to reasonable levels before entering, as long-term value remains.

Transformation Model Enterprise: Hitachi (6501.JP)

With a history of 111 years, Hitachi has invested $9.6 billion to acquire US digital services firm GlobalLogic, aiming to transform into a software service provider. CEO Toshiaki Higashihara calls this a “major transformation for the entire company.”

Founded in 1910, Hitachi is known for aggressive M&A strategies, having exited most consumer electronics markets and divested stagnant businesses in recent years. Its current strategy is clear: retain heavy machinery businesses like rail transit and automotive parts, and focus on industrial digitalization services. A professor at UC San Diego commented that Hitachi’s frequent asset restructuring creates “Hitachi Shock,” and its shift from an electrical manufacturer to an infrastructure data solutions provider is a benchmark for corporate transformation.

Hitachi’s strength lies in its clear transformation strategy and strong execution, with recent stock performance confirming market recognition of its transformation results.

Long-term Outlook: When Will the Key Turning Point Arrive?

In the short term, the trend of Japanese stocks mainly depends on trade policies. While tariff reductions may trigger a rebound, the global economic slowdown and weak Japanese exports suggest the Nikkei may fluctuate between 37,000 and 38,000 points. Currently, foreign capital inflows are mainly driven by valuation arbitrage; how long this hot money can sustain remains to be seen.

If extended to 2026, the shift in BOJ monetary policy could be a critical factor. If the BOJ resumes rate hikes, valuation opportunities in financial stocks could emerge, and yen normalization could improve corporate profitability. The key remains whether the BOJ’s rate hike pace can align with global economic conditions.

To push the Nikkei above 40,000 points again and continue upward, multiple positive factors need to align: ongoing corporate governance reforms improving ROE, emerging industry competitiveness, and substantial improvements in Japan-US trade relations. Currently, these conditions are not fully in place, and investors should maintain a rational and cautious outlook.