Japanese Stock Investment Guide: Will the 2025 Recovery Continue?

In the first half of 2025, the Japanese stock market experienced a classic “surprise-rebound” rally. Although the Nikkei 225 index saw a significant correction in April due to global trade policy impacts, it quickly rebounded strongly afterward, breaking through the 40,000-point level in June and reaching a recent high. Market enthusiasm for Japanese stocks has also increased. So, what is the logic behind this rally? Which Japanese stocks are worth watching? How can Taiwanese investors participate?

The Dual Drivers Behind the Recommended Japanese Stocks

This upward cycle in Japan’s stock market fundamentally reflects the combined effects of “value revaluation” and “structural transformation.”

From a valuation perspective, in April, the Nikkei’s P/E ratio fell to around 12 times, significantly lower than major global markets. As international investors reassessed Japanese corporate profitability, the P/E ratio gradually recovered to about 13 times, which was key to market re-pricing Japanese assets. Meanwhile, overseas institutional funds are actively reallocating their portfolios, reducing holdings of U.S. stocks and increasing Japanese stock positions, providing ample capital momentum for Japanese stock recommendations.

On the fundamentals side, reforms in corporate governance driven by the Tokyo Stock Exchange have begun to show results. More Japanese companies are emphasizing shareholder returns, increasing dividend payouts, and implementing share buyback programs. This management shift is attracting more value-oriented investors. Additionally, the global recovery of the tech supply chain has boosted strategic industries like semiconductors and precision equipment, further enhancing market confidence.

However, the sustainability of this rally remains uncertain. The direction of the Bank of Japan’s monetary policy and changes in global geopolitical tensions will directly influence the investment value of recommended Japanese stocks.

List of 7 Recommended Japanese Stocks: Mining for Quality Companies

Based on the above market logic, the following seven stocks cover various strategic sectors such as industrial manufacturing, semiconductors, and entertainment content:

Leading Industrial Automation: Keyence (6861.JP)

Keyence is a hidden champion in industrial automation, founded in 1974, specializing in high-value sensors, vision systems, laser markers, and other precision equipment. These products are sold in 46 countries worldwide and are integral to high-end manufacturing sectors like semiconductors, automotive, and biotech.

In fiscal year 2024, Keyence reported revenue of 1.059 trillion yen, operating profit of 549.78 billion yen, and net profit of 398.66 billion yen, with all metrics showing steady growth. Wall Street analysts’ 12-month average target price is 74,282 yen, with a high of 80,075 yen—about 30% upside from current levels—making it one of the most promising industrial stocks in Japan.

Semiconductor Equipment Giant: Tokyo Electron (8035.JP)

Tokyo Electron is a critical supplier in the global semiconductor supply chain, providing wafer cleaning, coating, and other process equipment to companies like Samsung, TSMC, and Intel. As demand for advanced chips rises, the company’s performance has surged.

In FY2024, Tokyo Electron’s revenue reached 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. Gross profit increased 38.1% to 1.15 trillion yen, with gross margin rising to 47.1%. Operating profit soared 52.8% to 697.32 billion yen, with an operating margin of 28.7%. After earnings release, the stock has already appreciated significantly, but analysts like Jefferies maintain a buy rating with a target price of 32,000 yen—another must-watch in Japanese stocks.

Defense Industry Leader: Mitsubishi Heavy Industries (7011.JP)

Mitsubishi Heavy is a symbol of Japan’s industrial history. Since its founding in 1884, it has grown into a comprehensive conglomerate covering aerospace, energy equipment, and defense.

For FY2024-25, the company’s operating profit reached 383.2 billion yen, up 35.6%. Looking ahead to FY2025-26, driven by sustained defense demand, it is projected to grow another 9.6% to 420 billion yen. Aerospace and defense are expected to see a 40% profit increase, becoming key growth engines. The average 12-month target price from Wall Street analysts is 3,743 yen, with a high of 4,100 yen—about 17.5% upside—making it a defensive pick amid geopolitical risks.

Gaming Content Transformation: Nintendo (7974.JP)

Nintendo faced a transitional year in FY2024, with revenue down 30.3% to 1.16 trillion yen and operating profit down 46.6% to 282.5 billion yen, as the Switch console entered its late lifecycle and gamers awaited the next generation.

However, many market analysts believe the gaming industry’s growth continues to outpace global GDP. TD Cowen notes that expanding user bases and diversified monetization models (subscriptions, virtual items, seasonal content) are increasing profitability per player. The average 12-month target price from 11 Wall Street analysts is 14,035 yen, with a high of 20,780 yen—reflecting market optimism for upcoming Nintendo products. It remains a long-term growth stock in Japan.

Content Ecosystem Integrator: Sony Group (6758.JP)

Sony’s recent earnings show divergence. Net profit for the March quarter increased 4.6% YoY to 197.7 billion yen, mainly driven by music and movies. However, the new fiscal year’s net profit is expected to decline 13%, mainly due to U.S. tariff headwinds.

Sony’s strength lies in its early content ecosystem investments—acquiring game studios like Bungie, streaming platform Crunchyroll, and collaborating with Kadokawa to develop IP derivatives. These investments are already paying off. Despite a downward revision of PS5 sales from 18.5 million to 15 million units, Sony’s management is actively addressing tariff impacts by diversifying production bases and adjusting pricing strategies. This balanced approach makes Sony a defensive and growth-oriented choice among Japanese stocks. The average 12-month target price from nine analysts is 4,389 yen, about 21.7% above current levels.

Value Investment Favorite: Mitsubishi Corporation (8058.JP)

Mitsubishi Corporation is one of Japan’s five major trading companies and a key stock recommended by Warren Buffett’s Berkshire Hathaway, which increased its holdings by 1.0%-1.7% in June 2025, reaching 8.5%-9.8%.

Buffett has been investing in Japanese trading houses since 2019, valuing their capital efficiency, management quality, and shareholder focus. He has indicated in shareholder letters that Berkshire’s stake will rise above 9.9%, hinting at continued accumulation.

For FY2025, Mitsubishi’s revenue slightly declined 4.9% to 18.6 trillion yen, but pre-tax profit grew 2.3% to 1.4 trillion yen, with net profit of 950.7 billion yen—showing resilience typical of Japanese trading firms. Currently, the stock appears somewhat overvalued, so investors are advised to wait for a reasonable correction before entering.

Transformation Model: Hitachi (6501.JP)

Hitachi, with a 111-year history, has recently undergone aggressive asset restructuring, including a $9.6 billion acquisition of U.S. digital services firm GlobalLogic, aiming to shift toward software and digital solutions.

The company has gradually exited consumer electronics, focusing on rail transit, automotive parts, and heavy machinery, while expanding industrial digital services to help manufacturing clients upgrade digitally. Despite a brief dip due to tariffs, the stock has recovered rapidly, reaching a 20-year high. Experts praise Hitachi’s transformation from an electrical manufacturer to an infrastructure data solutions provider. This execution and market recognition make Hitachi a long-term candidate with significant growth potential among Japanese stocks.

Three Main Ways for Taiwanese Investors to Participate in Japanese Stock Recommendations

To participate in this Japanese stock rally, Taiwanese investors mainly have three options:

Method 1: Direct Investment in the Nikkei Index

Investing in stock indices is the most straightforward way to participate. While individual stocks may have larger swings, index investing offers greater certainty. As long as the Japanese market trends upward, investors can achieve stable gains.

The Nikkei 225 is Japan’s most well-known stock index, covering 225 top companies. In the first half of 2025, it rebounded strongly from a low of 31,136 points, driven by valuation recovery, capital flows, and fundamental improvements. Using CFD trading, investors can directly buy the index with leverage of 1-200 times, starting from as little as $50, suitable for small to medium investors.

Method 2: Investing in Japanese Stocks via U.S. ADRs

Many Japanese companies, including Toyota, SoftBank, Sumitomo Mitsui, and Nintendo, have issued American Depositary Receipts (ADRs). Opening a U.S. brokerage account allows easy trading of these recommended stocks, which tend to move in tandem with their Japanese counterparts.

Method 3: Using Taiwanese Brokerage Cross-Border Trading

Taiwan’s Yuanta Securities and Fubon Securities offer cross-border trading services, allowing direct investment in Japanese stocks. However, this method involves more complex procedures, limited trading volume, and higher fees. Interested investors should consult their brokers for details.

Long-term Outlook for Japanese Stocks: Opportunities and Risks

In the short term, the Japanese stock rally is mainly influenced by trade policies. If tariffs improve, a rebound may occur; however, amid global economic slowdown and weak exports, the Nikkei is likely to fluctuate between 37,000 and 38,000 points. Foreign capital inflows currently rely on valuation arbitrage, and whether this hot money can persist remains uncertain.

In the medium term, the key turning point will be the Bank of Japan’s monetary policy shift around 2026. If the BOJ resumes interest rate hikes, financial stocks could see valuation improvements; a normalization of the yen exchange rate would also enhance corporate profitability. All depends on the BOJ’s pace of policy adjustment aligning with global economic conditions.

Long-term, for the Nikkei to break through 40,000 points or reach new highs, multiple positive factors must align—such as continuous improvement in ROE driven by corporate governance reforms, emerging industry competitiveness, and substantive improvements in U.S.-Japan trade relations. Currently, these conditions are not fully in place.

Therefore, for investors seeking Japanese stock recommendations, a phased approach with risk control is advisable. Index investing provides stable baseline returns, while stock picking can capture excess gains. Close attention should be paid to BOJ policies, global trade developments, and corporate fundamentals, adjusting holdings flexibly. The value of Japanese stocks is gradually emerging, but patience and caution are equally important.