Nikkei Index surpasses 40,000 points! 7 popular stock recommendations and investment guide for Taiwanese investors

In the first half of 2025, the Japanese stock market showed a strong rebound after a significant correction in April. As we entered May and June, the rally accelerated. By the end of June, the Nikkei 225 index broke through the 40,000-point level, reaching 40,487 points, hitting a new high in nearly a year and approaching the 33-year peak. What is the logic behind this surge? Can it continue? What investment targets are worth关注? How should Taiwanese investors participate?

The driving forces behind the Nikkei’s new high

Valuation repair as the main engine

In April, global tariff policies triggered market panic, causing the Nikkei index to plunge to a low of over a year at 31,136 points. At that time, Japan’s P/E ratio was only about 12 times, significantly cheaper than major global markets. As market participants gradually realized that previous pessimistic expectations were excessive, the P/E ratio gradually recovered to around 13 times. This valuation reshaping became the primary driver of the rebound.

Reallocation of international funds

There was a widespread call in the market to “adjust US stock positions,” with international institutions re-evaluating asset allocations. Relatively cheap Japanese stocks thus became a key target for overseas capital. This is not just a technical rebound; fundamental support also underpins it.

Effective corporate governance reforms

Reforms promoted by the Tokyo Stock Exchange are gradually taking effect. More Japanese companies are increasing dividend payouts and implementing share buyback plans, leading to tangible improvements in shareholder权益. Warren Buffett has been steadily布局 in Japan’s five major trading companies since 2019, and in June this year, he added investments (Mitsubishi Corporation, Mitsui & Co., Itochu Corporation, Sumitomo Corporation, Marubeni), indicating international capital’s认可 of Japan’s corporate governance reforms.

Opportunities from supply chain recovery

The global tech industry recovery has boosted the performance of Japanese semiconductors, precision equipment, and other sectors, enhancing market confidence.

However, whether the Japanese stock market can continue to advance depends on the future direction of the Bank of Japan’s monetary policy and whether global investors’ risk appetite shifts.

7 Japanese stocks worth关注

First: Keyence (6861.JP)

A “hidden champion” in industrial automation, founded in 1974, focusing on high-value-added products like sensors, vision systems, and laser marking equipment. Although not involved in manufacturing, it sells products worldwide through direct sales networks in 46 countries and regions.

Its products cover industrial automation (sensors, barcode readers), precision measurement (digital microscopes, measuring instruments), and process control (laser processing equipment), widely used in high-end manufacturing such as semiconductors, automotive, and biotech.

In FY2024, revenue was 1.059 trillion yen, operating profit 549.78 billion yen, net profit 398.66 billion yen. Wall Street analysts’ 12-month average target price is 74,282.41 yen, implying a potential upside of about 30% from the current price of 56,800 yen.

Second: Tokyo Electron (8035.JP)

A semiconductor equipment giant with a market cap of 12.6 trillion yen, supplying critical process equipment like wafer cleaning and coating to giants such as Samsung, TSMC, and Intel. As semiconductor strategic importance rises, demand for related equipment increases.

In FY2024, consolidated revenue reached 2.43 trillion yen, up 32.8% YoY. 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 surged 52.8% to 697.32 billion yen, net profit after tax grew 49.5% to 544.13 billion yen, with EPS jumping from 783.8 yen to 1,182.4 yen.

Analysts remain optimistic, with a target price of 32,000 yen.

Third: Mitsubishi Heavy Industries (7011.JP)

A century-old industrial giant originating from shipbuilding, now a comprehensive industrial group spanning aerospace, energy equipment, and industrial machinery. Its development exemplifies Japan’s heavy industry and represents the highest level of manufacturing technology.

Outlook remains optimistic. Benefiting from sustained defense demand, FY2025-26 operating profit is forecasted to grow 9.6% to 420 billion yen. Aerospace and defense are the main growth drivers, with a projected 40% increase in operating profit; energy systems are expected to grow 17%.

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

Fourth: Nintendo (7974.JP)

The gaming giant’s latest financial report is somewhat disappointing. FY2024 revenue fell sharply by 30.3% to 1.16 trillion yen, operating profit plummeted 46.6% to 282.5 billion yen, and net profit shrank 43.2% to 278.8 billion yen.

The decline is due to the Switch console entering the late stage of its lifecycle, with the upcoming Nintendo Switch 2 further dampening consumer purchase intent. The Americas remain the largest market (44.2% of revenue), followed by Europe and Japan at 24.5% and 23.6%, respectively.

However, market analysts believe the gaming industry is re-emerging as an investment opportunity. Growth continues to outpace global GDP, with expanding player bases and diversified monetization models (subscriptions, virtual items, seasonal content), increasing the potential customer value for developers.

The average 12-month target price from 11 Wall Street analysts is 14,035.27 yen, with a high of 20,780 yen.

Fifth: Sony Group (6758.JP)

As of March, quarterly net profit increased 4.6% YoY to 197.7 billion yen, but the new fiscal year’s net profit forecast declined 13%, mainly due to US tariff policies.

Music and film content divisions are the main profit drivers. Sony’s recent content ecosystem布局 has yielded results—acquisitions like Bungie, the anime platform Crunchyroll, and collaborations with Kadokawa Group to develop IP derivatives are beginning to pay off.

Hardware business faces adjustments. PS5 sales are revised down from 18.5 million units to 15 million. US tariff policies are expected to erode 100 billion yen in operating profit, prompting Sony to reassess global supply chain布局, adopting measures like diversifying production bases and adjusting pricing.

Sony demonstrates the “resilient management” capability typical of Japanese tech firms—while maintaining hardware operations, it accelerates content service transformation. Whether this “soft-hard” strategy can successfully counter geopolitical risks remains a key observation.

The average 12-month target from 9 Wall Street analysts is 4,389.49 yen, representing a potential upside of 21.69% from the current price of 3,607 yen.

Sixth: Mitsubishi Corporation (8058.JP)

One of Japan’s five major trading companies, Mitsubishi Corporation is also among Buffett’s favorite Japanese investments. In June 2025, Berkshire Hathaway filed regulatory documents indicating increased holdings in all five trading companies by 1.0% to 1.7%, reaching a total stake of 8.5% to 9.8%.

Buffett has been investing in these trading companies since July 2019, attracted by their capital efficiency, management quality, and shareholder focus. In shareholder letters, he hinted that he has obtained Japanese approval to increase holdings above 9.9% and is inclined to add more.

For FY2025 (ending March 31), Mitsubishi’s revenue was 18.6 trillion yen, down 4.9% YoY, but pre-tax profit grew 2.3% to 1.4 trillion yen. Net profit attributable to the parent was 950.7 billion yen, slightly down 1.4%, demonstrating resilience amid economic downturns.

Current stock prices are somewhat high; investors are advised to consider entering on a pullback to reasonable levels.

Seventh: Hitachi (6501.JP)

Founded in 1910, with 111 years of history, Hitachi has distinguished itself among Japanese conglomerates through aggressive M&A strategies. Once a household name in appliances and consumer electronics, it is now undergoing a major industry transformation.

Recently, Hitachi made a $9.6 billion acquisition of U.S. digital services firm GlobalLogic, aiming to shift toward software and digital services. It has exited most consumer electronics markets, abandoned stagnant businesses like power tools and chemicals, and focused on heavy machinery such as rail transit equipment and automotive parts, while actively promoting industrial digitalization services to help manufacturing clients upgrade digitally.

Although short-term pressure from U.S. tariffs in April caused some dip, the stock quickly rebounded and is near a 20-year high. UC San Diego professor Ulrike Schaede comments that Hitachi’s frequent asset restructuring creates a “Hitachi shock” for conservative Japanese firms, exemplifying corporate transformation from an electrical manufacturer to an infrastructure data solutions provider.

Investing in Hitachi offers advantages due to its clear transformation strategy and strong execution, with market recognition reflected in its stock performance.

Outlook and investment logic for the Japanese stock market

Short-term outlook

Recently, Japan’s stock trend has been mainly influenced by trade policies. While tariff reductions may trigger a rebound, global economic slowdown and weak exports could cause the Nikkei to fluctuate between 37,000 and 38,000 points in the near term. Caution is needed as foreign capital inflows are mainly valuation arbitrage; how long this hot money can sustain is uncertain.

Medium to long-term outlook

If we look toward 2026, the key variable will be the Bank of Japan’s monetary policy shift. If the BOJ resumes rate hikes, financial stocks could see valuation improvements, and a normalization of the yen exchange rate could enhance corporate profitability. The core remains monitoring the pace of BOJ rate increases and global economic conditions.

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 industry competitiveness, and tangible improvements in Japan-US trade relations. These conditions are not yet fully in place.

Three ways for Taiwanese investors to participate

Method 1: Direct index investment

Investing in stock indices is the simplest and most direct approach. Although the gains may not be as spectacular as individual stocks, as long as the Japanese stock market as a whole rises, investors can achieve relatively certain returns. For those seeking investment certainty, index investing is the best choice.

The Nikkei 225 covers 225 top listed companies in Japan, including nearly all well-known Japanese firms. In the first half of this year, it first fell to over a year low of 31,136 points, then rebounded strongly driven by valuation repair, global capital flows, and fundamental improvements. While it’s uncertain whether this rebound can be sustained, the Japanese stock market has at least shaken off excessive caution, making it a viable asset allocation option.

Method 2: Buying Japanese stocks via US stock market

Many well-known Japanese companies have ADRs listed in the US, such as Toyota (TM.US), SoftBank (SFTBY.US), Sumitomo Mitsui (SMFG.US), Nintendo (NTDOY.US), etc. Investors with US brokerage accounts can easily trade these stocks, which tend to move in tandem with their Japanese counterparts.

Method 3: Using Taiwanese brokerage firms for cross-border trading

Directly purchasing Japanese stocks is more complex, but brokers like Yuanta Securities, Fubon Securities, and others in Taiwan can assist with cross-border委託 trading. The process is more involved, with limits on purchase quantities and higher fees. Investors should consult their broker’s customer service for details.

Conclusion

The Nikkei surpassing 40,000 points and reaching a 33-year high reflects a market re-evaluation of Japanese corporate value. The 7 selected stocks each have unique features—from Keyence, a leader in industrial automation; Tokyo Electron, a semiconductor equipment giant; Mitsubishi Heavy Industries benefiting from defense demand; Sony, transforming content; to trading giants Mitsubishi Corporation and century-old Hitachi. Their leadership and transformation efforts indicate promising investment opportunities in Japan’s new era. For Taiwanese investors, participating through diversified tools can help spread risk and seize growth opportunities.