How to deal with a fall in the Japanese stock market

 In the 2000s, there was a ray of light in Japan's recession.

As the Koizumi Junichiro administration's active reforms have improved economic efficiency and made the effects of financial reforms clear, labor productivity growth has begun to increase again.

First of all, total factor productivity (TFP) has been steadily rising since the 2000s.

Total factor productivity means increased productivity that cannot be explained by input of factors such as labor or capital.

In other words, qualitative growth, not quantitative growth, has begun in earnest.

Technological innovation and collaborative technological advancements are too obvious to disappear overnight.

The second reason why the Japanese economy has increased productivity faster since the mid-2010s is that listed companies' profitability has been steadily improving.

ROE measures how much profit a company generates using its assets.

Since we don't see the last of the three methods (leverage), we suggest that the recent improvement in Japanese companies' profitability is due to management innovation or improved returns.

Of course, the stock market PBR (Price Book Value Latio) remains at an all-time low because participants in the Japanese stock market do not trust the profitability of Japanese companies as shown in Figure 2.

However, as long as ROE remains high, it should not be forgotten that stock prices can rise steadily without raising PBR.

This means that an increase in ROE increases the company's profits, increasing the dividend or net asset value per share.

Dividends are directly related to shareholders' investment returns, and even if the stock price/booking rate is the same, the increase in NAV per share is the driving force behind the rise in stock prices.

The Southern European stock market is not suitable for investment

There are often markets that are not suitable for investment, such as the Japanese stock market in the 80s and 90s.

A typical example is the southern European market such as Italy.

"Figure 3" shows the ROE and PBR trends in Italy.

Quality Growth Restores the Japanese Stock Exchange…leverage operation fall|Author Yirum urology

If you're not familiar with futures trading, you can understand futures trading as a two-way (rising, falling) investment in the price of underlying assets such as indexes, raw materials, interest rates, and exchange rates.

For example, if you invest in Nikkei futures in Japan, if you think the Nikkei index will rise in the future, you can enter the buying position (Long). 

And then when the index actually goes up, you get a return. 

On the contrary, if you think the index will fall in the future, you can enter the short position. 

[Source] How to deal with a fall in the Japanese stock market!|Author extreme