Nikkei breaks 40,000 points: These Japanese stocks are worth tracking [Taiwan Investor's Guide]

In the first half of 2025, the Japanese stock market experienced a strong rebound after the collective panic in April. On June 30th, the Nikkei 225 index closed at 40,487 points, reaching a nearly 33-year high, just shy of the 40,000 point threshold. What is the logic behind this rally? Can it continue? And which Japanese stocks are worth positioning? How should Taiwanese investors buy? This article will analyze each aspect in detail.

Why Did the Japanese Stocks Rebound Rapidly? Three Core Logic Points

The rise of the Japanese stock market this time is not accidental but the result of multiple factors stacking up.

First is valuation repair. During the global tariff panic in April, the P/E ratio of the Nikkei index fell to around 12 times, far below major European and American markets. As the market gradually recognizes that pessimistic expectations are excessive, investors begin to reassess the true value of Japanese companies, and the P/E ratio gradually rises back to about 13 times. This revaluation of undervalued assets has become the main driver of this rebound.

Second is the shift in international capital flows. Recently, global investment institutions have shown a trend of “reducing holdings of US stocks and increasing allocations to other markets.” Due to its relatively low valuation and shareholder-friendly dividend policies, the Japanese stock market has become a key target for overseas capital allocation.

Third is the improvement in fundamentals. The corporate governance reforms promoted by the Tokyo Stock Exchange have begun to show results, with more listed companies actively increasing cash dividends and implementing share buybacks. Meanwhile, the recovery of the global tech industry chain has driven a rebound in the performance of Japanese semiconductor and precision equipment manufacturers, strengthening market confidence in the bullish outlook.

It is worth noting that Warren Buffett’s Berkshire Hathaway increased its holdings in Japan’s five major trading companies (Mitsubishi, Mitsui, Itochu, Sumitomo, Marubeni) in June this year, and Buffett has publicly stated that he “will not sell these holdings for 50 years.” This move itself sends a strong long-term positive signal to the market.

Seven Selected Japanese Stocks Recommendations

1. Keyence (6861.JP)

As a “hidden champion” in industrial automation, Keyence has been focusing on developing high-value-added automation sensors, vision systems, laser marking equipment, and other industrial solutions since its founding in 1974. The company uses a direct sales model, with products sold in 46 countries and regions worldwide.

In fiscal year 2024, Keyence achieved revenue of 1.059 trillion yen, operating profit of 549.78 billion yen, and net profit of 398.66 billion yen, with all indicators maintaining steady growth. Five Wall Street analysts’ average 12-month target price is 74,282 yen, with a high of 80,075 yen. Compared to the current stock price of 56,800 yen, there is an implied upside of about 30%.

2. Tokyo Electron (8035.JP)

This semiconductor equipment giant has a market value of 12.6 trillion yen and is a key supplier in the global wafer manufacturing supply chain, mainly providing wafer cleaning and coating equipment for TSMC, Samsung, Intel, and other major manufacturers.

In fiscal year 2024, consolidated revenue reached 2.43 trillion yen, up 32.8% year-over-year, with overseas sales growing 36.2% to 2.24 trillion yen, accounting for 92.2%. Gross profit increased by 38.1% to 1.15 trillion yen, with gross margin rising to 47.1%. Operating profit surged 52.8% to 697.32 billion yen, and net profit grew 49.5% to 544.13 billion yen.

Analysts like Jefferies maintain a buy rating, with a target price of 32,000 yen, indicating considerable upside potential from the current price.

3. Mitsubishi Heavy Industries (7011.JP)

As a century-old symbol of Japanese industry, Mitsubishi Heavy Industries covers aerospace, energy equipment, industrial machinery, and other strategic sectors. The company estimates that operating profit for fiscal year 2025-26 will grow 9.6% to 420 billion yen, with aerospace and defense segments seeing a profit increase of up to 40%, becoming a growth driver.

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

4. Nintendo (7974.JP)

Although revenue in fiscal year 2024 declined 30.3% to 1.16 trillion yen and net profit shrank 43.2% to 278.8 billion yen (mainly due to the end of the Switch lifecycle and pre-launch of new consoles dampening demand), industry analysts believe the gaming sector’s fundamentals remain intact.

TD Cowen analysts point out that the growth rate of the electronic gaming industry continues to surpass global GDP growth, driven by expanding player bases, subscription models, virtual items, and diversified monetization strategies. Eleven Wall Street analysts’ average target price is 14,035 yen, with a high of 20,780 yen.

5. Sony Group (6758.JP)

Sony’s latest quarterly net profit increased 4.6% year-over-year to 197.7 billion yen, mainly benefiting from its music and film businesses. The company’s content ecosystem is gradually taking shape through acquisitions like game studio Bungie and anime platform Crunchyroll.

However, hardware sales face challenges, with PS5 sales forecast revised downward from 18.5 million units to 15 million. Additionally, US tariff policies are expected to cut 100 billion yen from operating profit, prompting Sony to adjust its global supply chain. Measures include diversifying production bases and adjusting pricing strategies.

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

6. Mitsubishi Corporation (8058.JP)

One of Japan’s five major trading companies and a long-term favorite of Warren Buffett. In June 2025, Berkshire Hathaway submitted documents to regulators, announcing that it increased its holdings in all five trading companies by 1.0%-1.7%, reaching a combined stake of 8.5%-9.8%. Buffett has also publicly stated that he has obtained Japanese approval to raise his holdings above 9.9%.

For fiscal year 2025 (ending March 31), revenue was 18.6 trillion yen, down 4.9% year-over-year, but pre-tax profit grew 2.3% to 1.4 trillion yen, with net profit attributable to the parent company at 950.7 billion yen. The current stock price is slightly high; it is advisable to wait for a reasonable entry point.

7. Hitachi (6501.JP)

This industrial giant with a 111-year history is undergoing a major transformation, having acquired U.S. digital services company GlobalLogic for $9.6 billion, shifting focus toward software services. The company has gradually exited the consumer electronics market, concentrating on heavy machinery manufacturing such as rail transit equipment and automotive parts, while increasing investment in industrial digitalization services.

Although it plunged in April due to tariff policies, it quickly recovered, and the stock price is now near a 20-year high. With a clear transformation strategy and strong execution, Hitachi’s recent stock performance has been recognized by the market.

How Can Taiwanese Investors Buy Japanese Stocks?

Method 1: Invest in the Nikkei 225 Index

Direct investment via CFDs or index funds tracking the Nikkei 225 is the simplest approach. While the upside may be less than individual stocks, the certainty is higher. The Nikkei 225 covers 225 top-listed companies in Japan, representing the market well.

In the first half of the year, the Nikkei 225 initially fell to a low of 31,136 points amid tariff fears, then rebounded strongly under valuation repair, capital flow, and fundamental improvement logic. Although whether the rebound can continue remains to be seen, the Japanese stocks have clearly shaken off excessive caution.

Method 2: Invest in Japanese companies via US stocks

Many well-known Japanese companies are listed on US stock exchanges via ADRs, including Toyota ™, SoftBank (SFTBY), Sumitomo Mitsui (SMFG), Nintendo (NTDOY), and others. With a US brokerage account, trading is convenient, and the trend generally aligns with the Japanese domestic stocks.

Method 3: Use Taiwanese brokers for cross-trading

Yuan Ta Securities, Fubon Securities, and others offer Japanese stock cross-trading services, but the process is relatively complex, with trading limits and higher fees. Investors should consult their brokers for specific procedures.

Market Outlook and Risk Tips

In the short term, the Nikkei’s movement is mainly influenced by trade policies. While tariff reductions may bring a rebound, the global economic slowdown and weak Japanese exports suggest the index will fluctuate between 37,000 and 38,000 points. Experienced market players remind that current foreign capital inflows are mainly for valuation arbitrage, and the sustainability of hot money remains uncertain.

Looking further to 2026, the Bank of Japan’s monetary policy shift could be a key turning point. If the BOJ resumes rate hikes, financial stocks may see valuation opportunities, and yen normalization could improve corporate profitability. However, the key remains whether the BOJ’s pace of rate hikes can align with the global economic situation.

For the Nikkei to break through 40,000 points and continue upward, multiple positive factors need to align: corporate governance reforms driving ROE higher, emerging industries gaining competitiveness, and substantial improvements in Japan-U.S. trade relations. Currently, these conditions are not fully in place, so investors should remain cautiously optimistic.