We recently compiled a list of the 10 Best Japanese Stocks To Buy Now.In this article, we are going to take a look at where Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) stands against the other Japanese stocks.
As we navigate through 2024, Japan’s economic landscape is emerging as a compelling arena for investors. Despite facing a rough start to the year, the nation is showing signs of a promising rebound. This economic shift, marked by a blend of renewed consumer confidence and a supportive policy environment, is setting the stage for a vibrant stock market. As we delve into our list of the ten best Japanese stocks to buy now, understanding Japan’s evolving economic narrative becomes crucial for making informed investment decisions.
Japan's economic landscape has undergone a notable transformation, offering a promising horizon for investors. Despite facing challenges in early 2024, signs of a recovery are beginning to emerge. The initial months of the year saw Japan grappling with a slight contraction, with real GDP declining by 0.5% in the first quarter and trailing by 1.3% from its previous peak. Consumer spending, a critical driver of economic activity, fell in three out of the last four quarters, compounded by reductions in residential and non residential investments and exports. However, this downturn seems to be approaching its nadir.
Looking ahead, the latter half of 2024 holds potential for a turnaround. According to Deloitte's Global Economics Research Center, stronger wage growth and moderate inflation are expected to stimulate consumer spending. Furthermore, a weaker yen is anticipated to bolster export growth. While these factors are poised to enhance economic conditions, growth might remain modest as the central bank is likely to tighten monetary policy, tempering some of the anticipated upswing.
Consumer sentiment shows signs of improvement, albeit gradually. Real household spending, though down 1.8% in May compared to the previous year, marks a significant recovery from the 6.3% decline observed in January. Retail sales growth has accelerated, although broader measures like the real consumer activity index are yet to display a robust recovery. Despite these mixed signals, underlying consumer fundamentals are improving, suggesting a rebound in spending is on the horizon.
A significant factor in this potential rebound is the labor market. As reported by Morgan Stanley, Japan is experiencing its strongest wage growth in three decades, with scheduled earnings up 4.7% year over year in May. This wage increase, coupled with moderate inflation of 2.8%, enhances household purchasing power. Low unemployment rates and rising total employment further contribute to a more favorable economic environment.
Nevertheless, rising food and energy prices present challenges. Costs for fuel, light, and water increased by 6.6% year over year in May, reversing previous declines. Food prices also saw a notable rise of 4.1% from the previous year. These increases are partly due to a weakening yen, which has caused import prices to surge. The yen briefly hit its weakest level since 1986 in June, prompting speculation about potential government intervention to stabilize the currency. Despite these challenges, the yen's depreciation has also led to increased foreign demand for Japanese goods and services.
The weaker yen has, paradoxically, fueled a rise in exports, with goods exports up 11.9% year over year in May. The global demand for Japanese technology, including integrated circuits, has driven this growth. Moreover, foreign tourism, despite being below pre-pandemic levels from China, has reached record highs and contributed positively to employment in related sectors.
The bank's research highlights a significant shift in Japan's economic trajectory. The end of deflation and a return to steady growth are driving a generational change in Japan's economy. With nominal GDP growth surpassing 3% in recent years and improvements in corporate governance, Japan is positioned as an attractive market for global investors. The combination of policy reforms and economic adjustments is expected to continue benefiting Japanese equities, particularly in technology and banking sectors.
As we delve into the ten best Japanese stocks to buy now, it's essential to recognize these evolving economic conditions. Japan's stock market, buoyed by renewed economic dynamism and corporate reforms, presents promising opportunities for investors. The backdrop of stronger wage growth, modest inflation, and an improved economic outlook sets the stage for top performing stocks in the Japanese market.
Our Methodology
For this article, we first identified 20 large Japanese stocks by using stock screeners and financial media. We then selected the 10 stocks that were the most popular among hedge funds, as of Q2 2024. The list is arranged in ascending order of the number of hedge fund holders with long positions in each company.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A smiling employee in front of a modern building surrounded by a vibrant cityscape.
Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) is a prominent Japanese financial institution. Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) operates as the bank holding company, that engages in a range of financial businesses in Japan, the United States, Europe, Asia and internationally. Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) has demonstrated impressive financial resilience, as reflected in its Q4 2024 earnings report, underscoring its potential as a solid investment.
In FY 2023, the company reported a record-high net operating profit of ￥1,843.7 billion, a year over year increase of ￥249.4 billion, showcasing its strong operational efficiency. This performance is particularly impressive given the absence of revenue from the sale of MUFG Union Bank (MUB). Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) strategic portfolio rebalancing helped the firm navigate global market fluctuations, while its core operations, such as lending and deposit interest income, saw growth. This is a significant indicator of the company’s operational strength, driving steady top-line growth across its key customer segments.
Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) financial metrics further support its bullish outlook. Net interest income increased on a real basis, excluding the effect of the MUB sale, demonstrating solid growth in the company’s core lending activities. Additionally, the firm saw a sharp increase of ￥130 billion in net fees and commissions, driven by increased income from foreign loans, asset management, and wealth management services. These are positive signs for the company’s ability to generate consistent revenue streams.
Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) efficiency improvements are also noteworthy, with a ￥19.9 billion reduction in general and administrative expenses, despite inflation and a weaker yen. The expense ratio improved to 61%, down by 3.5 percentage points, reflecting disciplined cost management. This cost control, combined with strong profit growth, underscores the firm’s operational efficiency.
The company also saw a significant increase in profits attributable to owners of the parent, up by ￥374.2 billion to a record ￥1,490.7 billion. This reflects a healthy return on equity (ROE) of 8.5%, reinforcing the firm’s profitability. With strong fundamentals, effective expense control, and growing revenues, Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) stands out as a top Japanese stock for investors seeking growth and stability in the financial sector.
Overall MUFG ranks 3rd on our list of the best Japanese stocks to buy. While we acknowledge the potential of MUFG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MUFG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
