It is June 2026, and the financial laws of gravity are completely breaking down across two different hemispheres.

The US stock market has reached valuations that defy all historical sanity. The S&P 500 is currently sitting at a massive 41.6 on the Shiller P/E. As a refresher, this metric smooths out the normal ups and downs of the economy by looking at ten years of profits instead of just one. In plain English, a 41.6 ratio means investors are paying nearly $42 today for every $1 of profit those companies averaged over the last decade.

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To understand how insane that is, you have to look at 140 years of market data. The current valuation is more than twice the long-run historical average of 17.3. We have officially blown past the infamous 1929 peak of 32.6, which preceded the Great Depression. We even crushed the post-pandemic stimulus peak of 38.6. There is only one single moment in the entire history of American capitalism when stocks were more expensive than they are today. That was December 1999, right at the peak of the dot-com bubble, when the Shiller P/E hit 44.19.

Meanwhile, over in Japan, I am seeing a totally different milestone. The Nikkei 225 just broke 65,000 and hit an intraday all-time high of 66,428.81 in late May 2026. Japan spent over three decades trapped in the shadow of its own legendary crash. But unlike the current American market, Japan’s rally is not built on speculative AI euphoria. Japan’s CAPE ratio (Shiller P/E) is sitting at a quite reasonable 29.38. That is elevated globally, but it is nothing like the hallucinatory valuations Japan saw during its 1989 ultra-bubble, when their CAPE approached 100.

The American AI bubble is delusional

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Prime Minister Sanae Takaichi secured a massive supermajority in the February 2026 elections by reading the room.

Her winning message?

Revitalize the economy, strengthen national defense, and above all, enforce a hard cap on immigration.

This bears an eerie resemblance to "Sakoku 2.0", a term popularized during the Covid-19 pandemic referencing Japan's historical era of absolute national isolation.

This policy is fiercely contested globally. For one of the most rapidly shrinking countries on earth, embracing immigration seems essential for economic survival.

But what do the Japanese people think?

So far, they seem to love it!

This might sound strange in a country where basically everyone is aware that they will face a catastrophic labor shortage of 11 million workers by 2040.

People in favor of restricting immigration in Japan argue that Japan will survive this demographic collapse without mass immigration by simply automate everything. In fact, the government themselves claims Japan will capture 30 percent of the global market for physical AI by 2040, seamlessly deploying robots into nursing homes, restaurants, farms and construction sites.

I find this techno-utopian fantasy completely unrealistic.

Sure, Japan boasts incredible hardware engineering, but the country is notoriously terrible at software adoption and administrative modernization. Furthermore, Japan’s robotics leadership is actively slipping. The industry is shifting from rigid industrial arms to general-purpose robots powered by advanced AI, and Japan currently trails both the United States and China in key research and component production. We are not going to see 11 million humanoid robots walking the streets of Tokyo and Osaka to save the economy.

But maybe an economic fallout for curbing immigration is a price worth paying?

Many of you probably agree with Japan's hardline stance on immigration. Watching the disruption caused by mass migration across the West, Japan appears to be actively avoiding the same pitfalls. I see this view all the time on X and in my own comment section, and frankly, I agree there is merit to tightening the borders.

But a strict zero-immigration policy collides with one terrifying reality: No country in history has successfully reversed a falling fertility rate, and Japan shows zero signs of breaking that trend. Without immigration, a rapidly shrinking population is a mathematical certainty.

This leads to two massive issues for Japan:

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First, Japan’s insane national debt and its failing public pension system.

This is the structural elephant in the room. Japan’s dependency ratio (the number of retirees aged 65 and above compared to working-age people) is rising sharply. It will hit 60% by the early 2030s and a staggering 80% before 2050. You have a rapidly shrinking pool of workers funding a massive, aging cohort.

Without a massive influx of immigrant tax money to prop up the system, the government is executing a strategy of managed financial retreat. The state has already introduced a “macroeconomic slide” formula. This mechanism automatically keeps pension increases below wage growth and inflation, effectively cutting benefits over time. By 2040, the average pension level will be slashed by approximately 20 percent.

Because of this, we are staring down the barrel of widespread elderly poverty. Elderly households already constitute the largest category of public assistance recipients in the country. To stabilize national finances without immigrants, some academic models suggest the government would need to push the consumption tax to an impossible 40-50%. Since that is political suicide, the state will likely monetize the debt. This will trigger inflation that further erodes the purchasing power of fixed-income retirees. The government will simply force the elderly to work well into their 70s out of sheer survival necessity.

Second, a massive emptying out of Japan.

We are going to witness the death of the Japanese countryside.

According to the influential Masuda Report, without immigration, nearly half of all municipalities in Japan are at risk of vanishing entirely by 2040. By 2050, roughly 20% of regional areas could lose all of their inhabitants. Places like Akita, Aomori, and Kochi will see their populations plummet by over 30%.

As local tax bases evaporate, regional governments will go bankrupt. They will lose the ability to maintain roads, water systems, and power grids. The only rational response for young people is to pack up and abandon these areas.

If there is one silver lining, if you can call it that, it is that major cities in Japan will see a “population boom”, as the young people are abandoning their rural communities. The population will condense into a few highly efficient mega-cities like Tokyo and a handful of regional survivor hubs.

There is hope

However, some smaller cities are already countering this trend using the "compact city" model, with Toyama City serving as a highly successful prototype.

These survivor cities will be dense and hyper-concentrated around major public transit stations. The government will deliberately pull funding from sprawling suburbs and force residents into these walkable urban cores to drastically reduce the cost of delivering public services.

Is it a great solution? No, but it might be the only way for smaller cities in Japan to survive.

How will Japanese companies survive the labor shortage?

In the corporate world, I think I have a bit of a unique take now with the AI being so prevalent.

The return of the salaryman

I think we’ll see a resurgence of the traditional Japanese “salaryman,” heavily augmented by AI.

Artificial intelligence currently replaces specific tasks rather than entire jobs. The software is jagged. It excels at some things and fails spectacularly at others. This means companies cannot just fire their accounting departments and buy an algorithm.

Instead, large corporations will hire human generalists, something Japan Inc loves to do already. Their entire job will be to supervise flawed AI outputs, plug operational gaps, and physically intervene when the software inevitably breaks. Because these workers accumulate deep, firm-specific knowledge about how their particular company’s AI systems operate, they will become highly valuable assets. Japan’s cultural comfort with lifetime employment makes it uniquely suited for this specific kind of generalist labor market.

There will be no silver bullet for the workforce deficit

But augmenting office workers only solves part of the equation. What about the millions of missing physical laborers, service workers, and rural producers?

Take agriculture.

The average Japanese farmer is already pushing 70 years old. Without the controversial foreign trainee programs that previously funneled cheap labor into rural areas, domestic food production is going to crater. We will likely see a liberalization of farming laws which will result in the death of the small family farm, replaced by automated corporate agribusinesses, but overall, Japan’s food self-sufficiency will plummet.

Zombie companies will be replaced be monopolies

In the broader economy, the brutal truth is that thousands of companies simply won’t survive, but this might not be such a bad thing at first glance.

Japan is notorious for its zombie companies, unproductive, inefficient small-to-medium enterprises kept on life support for decades by zero-interest loans and government subsidies. Without an underclass of cheap, imported labor to exploit, these businesses will go bankrupt en masse.

This will lead to an era of ruthless hyper-consolidation. As the zombies die, the surviving workforce will be absorbed by a few large, capital-rich corporations.

On the bright side, because these mega-corps will be fighting to the death over a shrinking pool of available workers, we are going to see a massive spike in wages. The era of stagnant Japanese paychecks will end out of sheer demographic desperation.

Paradoxically, this hyper-consolidation means Japan’s stock market could actually boom. As the Nikkei giants absorb the market share of thousands of dead small businesses, corporate profits at the top will concentrate. We are looking at a starkly two-tiered economy: Aggregate GDP will shrink, but the remaining mega-corps will become wildly profitable monopolies.

But this wage growth and market concentration triggers a debt bomb. Rising wages mean sticky inflation. To fight that inflation, the Bank of Japan will have to raise interest rates. And when interest rates rise in a country with a national debt over 250% of its GDP, the government’s debt servicing costs will go fully parabolic.

The surviving monopolies will be the only ones able to afford to invest in the AI, automation, and higher wages required to keep operating. For the everyday consumer, this means the death of hyper-convenience. 24/7 convenience stores will slash their hours. Next-day delivery will become a premium luxury.

The inconvenient truth is that without migration, companies won’t magically replace 11 million workers; they will simply force consumers to accept less, while squeezing maximum productivity out of their remaining, AI-augmented human generalists.

Ultimately

If Japan actually locks the door on immigration, the result is a fascinating contradiction: the stock market will boom while the actual economy shrinks. As millions of workers vanish, thousands of small businesses will simply die off, leaving the surviving mega-corporations to scoop up all their customers and become wildly profitable.

But the stock market’s win is the everyday consumer's loss. For the average Japanese citizen, the legendary era of cheap, flawless convenience is over. They are going to wake up in a drastically more expensive country where basic services cost a premium, everything closes early, and the bill for a shrinking nation is paid entirely out of their own pockets.

Conclusion

If the Takaichi administration actually means what it says about immigration, they are making a massive trade-off. They are choosing social cohesion over economic growth. They are willing to accept a smaller economy, strained pensions, and dead rural towns as the price for keeping their core cities safe, clean, and culturally familiar.

I think this is the ultimate macroeconomic experiment of the 21st century.

Japan is proving that a modern society can look at the social fragmentation happening abroad and simply say no. They are choosing to manage their own decline, becoming smaller, older, and poorer on paper, to protect their way of life. The transition will be brutal, defined by vanishing services, soaring taxes, and empty neighborhoods. Ultimately, the everyday citizen will have to look around at this shrinking, expensive new reality and ask themselves a very uncomfortable question:

I used my super duper bullet proof value investing screener in LSEG Workspace (the Bloomberg terminal for poorer people 🥲) to find the most interesting value investing case right now on a quite frothily valued Japanese stock market. The Nikkei 225 index just breached the 65,000 mark for the first time in May 2026, and everyone on the street is losing their collective minds over semiconductor stocks and AI hype.

My Super Duper Japanese Stock Screener

16.9KB ∙ XLSX file

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After a lot of digging, I found a weird anomaly in the screener I first couldn’t believe, a gaming company with growing profits, one of the highest margins in the industry, and yet valued at P/E<11x.

On the surface, Koei Tecmo Holdings (3635) make video games about historical warlords hitting thousands of peasants with giant swords. Under the hood, they are a hyper-aggressive hedge fund wrapped in a digital entertainment publisher’s trench coat.

Every analyst covering Koei values the company strictly on software sales and gaming projections. But they completely miss that the company makes more money from massive offshore trades run by its legendary 77-year-old Chairwoman Emeritus than from its entire video game portfolio!

The market is pricing Koei Tecmo as a mediocre software developer, entirely missing the fact that it is the most fascinating corporate structure in Japan right now.

Executive Summary

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Rating and Target Price

• Rating: Strong Buy

• Current Price: 1,531 JPY (as of May 22, 2026)

• Target Price: 3,200 JPY

• Investment Horizon: 24 to 36 Months

Summary of Investment Thesis

Koei Tecmo Holdings is grossly mispriced by the broader equities market due to a fundamental misunderstanding of its dual-engine business model. The company generates industry-leading operating margins of 42.0% from its core video game entertainment segment. Simultaneously, its non-operating income from aggressive corporate asset management frequently eclipses its actual operating profit. Investors are effectively buying a world-class proprietary trading desk at a discount, while getting a top-tier Japanese gaming studio for absolutely free.

Key Catalysts

The primary catalyst for a multiple rerating is the recent formalization of Koei Tecmo Corporate Finance, a dedicated subsidiary established in early 2025 to house the company’s investment portfolio. This institutionalizes the wealth management division and prepares the firm for a generational leadership transition. Furthermore, the massive success of their latest collaborative title, Pokemon Pokopia, proves their proprietary game engine remains a highly lucrative licensing asset. Finally, the company must address its low tradable share ratio of 29.9% to meet Tokyo Stock Exchange Prime Market standards by which started in March 2026, which is already forcing massive share buybacks.

Valuation Summary

The stock trades at a trailing P/E ratio of 11.35x, which is criminally undervalued relative to its sector peers. Competitors like Capcom and Square Enix trade at significantly higher multiples of 23.0x and 36.2x respectively, despite possessing inferior balance sheets. The margin of safety is fortified by a robust dividend yield of 4.4% and a massive net cash and securities position that makes up nearly 70% of total assets.

Key Risks

The entire financial strategy hinges on the investment acumen of Chairman Emeritus Keiko Erikawa. Her eventual complete retirement poses an unquantifiable key-person risk to the non-operating income stream. Furthermore, heavy exposure to volatile financial markets introduces severe earnings instability, as demonstrated by the company losing 4.1 billion yen overnight during the Credit Suisse collapse in 2023.

Pillar 1: The Narrative

The origins of Koei Tecmo read less like a standard corporate founding and more like a financial survival thriller. Yoichi Erikawa originally ran his family’s dye business in Ashikaga, but the enterprise eventually collapsed under severe debt. It was his wife, Keiko Erikawa, who stepped in and utilized her incredibly sharp stock market skills to keep the family afloat during this existential crisis. This early reliance on the financial markets forged a corporate DNA that prioritizes aggressive capital management alongside product development.

To cheer up her husband during this dark period, Keiko purchased a Sharp MZ-80C microcomputer for his birthday in 1978. This machine was astronomically expensive for a struggling family, but it served as the ultimate catalyst for their future empire. Yoichi taught himself programming in the evenings and eventually developed the legendary historical simulation game Nobunaga’s Ambition.

While Yoichi focused on creating deep, complex strategy games, Keiko identified massive untapped demographics in the gaming market. She established an all-female game development group called Ruby Party. This brilliant team created Angelique, effectively inventing the “otome” romance game genre and proving that a massive market for female gamers existed.

The Erikawa duo termed their management philosophy “general excellence”. They blended creative risk-taking in software development with ruthless financial pragmatism in asset management. Keiko Erikawa earned the nickname “The Empress” within the industry due to her terrifyingly effective investment acumen.

She built a corporate investment portfolio that eventually swelled past 120 billion yen, shielding the company through every single downturn in the notoriously cyclical video game market. Instead of letting surplus cash rot in low-yield Japanese bank accounts, she actively traded equities, derivatives, and foreign bonds.

Her success was so profound that she was appointed as an independent director to the board of SoftBank Group in 2021. She became the only woman to sit on the board of Masayoshi Son’s conglomerate, offering vital supervision and advice based on her legendary track record.

In early 2025, the company underwent a massive generational transition to secure this unique structure for the future. Yoichi Erikawa stepped up to the role of Chairman, while long-standing executive Hisashi Koinuma took over as President and CEO. Keiko Erikawa transitioned to Chairman Emeritus and took the helm of a newly established, wholly-owned subsidiary named Koei Tecmo Corporate Finance.

This new corporate finance arm officially absorbed all investment functions from the legacy gaming division through an absorption-type company split. The move was explicitly designed to strengthen governance related to investments and optimize cash management across the entire conglomerate. It was a formal, legally binding acknowledgment that Koei Tecmo is an asset manager just as much as it is a software developer.

Japanese fans on social media regularly joke that Koei Tecmo is an investment fund disguised as a gaming company. They thank “The Empress” for generating the massive budgets required to fund high-quality releases like Dynasty Warriors Origins. They are absolutely right to do so, because her trading desk routinely outperforms the core operating business.

Pillar 2: The Moat

The video game industry is notoriously brutal, resembling the Hollywood movie business where one massive flop can bankrupt an entire studio. Koei Tecmo avoids this trap by maintaining a highly disciplined, proprietary game engine and leaning heavily on lucrative collaborative titles.

The company’s true competitive advantage lies in its patented “Warriors” gameplay formula, developed by their internal Omega Force studio. Instead of competing directly with giants like Nintendo or Square Enix, Koei Tecmo becomes their essential manufacturing partner. They have successfully applied their proprietary hack-and-slash engine to major intellectual properties like Zelda, Fire Emblem, and Persona.

This collaboration strategy drastically lowers research and development risks while guaranteeing a built-in, fanatical consumer base. The recent release of Pokemon Pokopia perfectly illustrates this moat in action. Co-developed with Game Freak, this post-apocalyptic life simulator launched in March 2026 and sold 2.2 million copies in just four days.

When Koei Tecmo does release proprietary titles, they target very specific, loyal niches to ensure high profitability. Nioh 3 launched in February 2026 and quickly sold over one million copies across all platforms. The use of their in-house Katana Engine allows Team Ninja to iterate rapidly without the bloated software licensing costs that plague western developers.

To truly understand this moat, one must compare Koei Tecmo directly against its domestic rivals. Capcom and Square Enix represent the two opposite ends of the Japanese third-party publishing spectrum. The data reveals exactly why Koei Tecmo holds the superior structural position in this industry.

Competitor Comparison: Capcom (9697)

Capcom is undeniably a phenomenal business, boasting thirteen consecutive years of operating profit growth. They have successfully globalized massive franchises like Resident Evil, Street Fighter, and Monster Hunter. Their operating margin hit an absurd 48.5% in the first half of fiscal 2025, driven by a massive shift to high-margin digital downloads.

Capcom's stock has taken a brutal beating, dropping roughly 28-32% over the last year depending on the exact exchange data you pull. However, even after that massive haircut, Capcom is still trading at a P/E of 23x. Furthermore, they do not possess a shadow hedge fund generating billions of yen in non-operating profit to smooth out inevitable software delays.

Competitor Comparison: Square Enix (9684)

If you want to see how to systematically incinerate shareholder capital, look no further than Square Enix. They are currently stumbling through a difficult transition period characterized by bloated development budgets and declining legacy revenues. Their net sales dropped 8.3% in fiscal 2026 due to severe weaknesses in their MMO segment following the Final Fantasy XIV Dawntrail expansion.

While they managed to temporarily increase operating income through drastic cost-cutting, their structural reliance on massive, risky blockbuster titles makes them highly vulnerable. Their management team seems determined to chase passing trends while neglecting the disciplined cost control required in modern game development. They are the exact opposite of Koei Tecmo’s “general excellence” philosophy.

The Koei Tecmo Advantage

Koei Tecmo sits comfortably in the middle, avoiding the expensive valuation of Capcom and the structural chaos of Square Enix. The company achieved a 42% operating margin in fiscal 2026, proving their core gaming business is highly efficient. They have a deeply entrenched economic moat built on reliable collaborations, predictable cash flows, and a fan base that eagerly buys every iteration of Dynasty Warriors.

The qualitative moat is ultimately defined by survival capabilities. The portfolio managed by Keiko Erikawa acts as an impenetrable financial fortress. This allows the creative teams at Omega Force and Team Ninja to take calculated risks without fearing corporate insolvency, a luxury no other studio in Japan possesses.

Pillar 3: The Financial Engine

I told you before that this company is a weird amalgamation between a hedge fund and a gaming company. Well, prepare to see the weirdness in action:

My LSEG Workspace screener initially flagged the company due to its bizarre and highly attractive capital structure. According to the extracted dataset, the company has a Net Debt to EBITDA ratio of -2.49x. This indicates a completely unleveraged balance sheet overflowing with highly liquid assets.

A thorough review of the consolidated statement of income for fiscal 2026 reveals the true nature of this financial beast. Net sales rose 6.3% year-over-year to 88.39 billion yen, driven by strong collaborative royalties and new software releases. Operating profit increased a very respectable 15.7% to 37.16 billion yen.

The real shock and awe occurs in the non-operating section of the income statement. Total non-operating income reached a staggering 39.92 billion yen in fiscal 2026.

Let me repeat that: The company generated more income from trading stocks and derivatives than it did from selling video games.

Income Statement & Portfolio Data (Fiscal Year 2026)

• Net Sales: 88,393 million JPY

• Gross Profit: 57,062 million JPY

• Operating Profit: 37,168 million JPY

• Non-Operating Income: 39,923 million JPY

• Non-Operating Expenses: 20,091 million JPY

• Ordinary Profit: 57,000 million JPY

• Profit Attributable to Owners: 42,830 million JPY

This massive non-operating windfall was primarily driven by an 18.64 billion yen gain on the sale of investment securities. They also booked 5.37 billion yen in derivative valuation gains and 12.26 billion yen in pure interest income.

So, what exactly is the Empress buying with this massive war chest? The infuriating reality for analysts is that the exact daily composition of her trading book is a closely guarded corporate secret. Under Japanese financial disclosure regulations, companies are only required to explicitly itemize “specified investment equity securities” held for strategic business alliances.

Assets held “for purely investment purposes” or short-term trading do not require full public itemization, rendering her multi-billion dollar portfolio a literal black box to outsiders. We know her stated strategy prioritizes continuity, flexibility, and soundness through active management of domestic and foreign equities and bonds. She leverages her massive industry network, highlighted by her personal seven million dollar stake in SoftBank, to pick individual winners.

However, the lack of line-by-line portfolio transparency is exactly why Wall Street ignores the asset management division entirely. As a value investor, I accept this opacity because her historical success and reliability are verifiable through the actual income statements. You do not need to know the specific holdings when the long-term track record of net non-operating income is this bulletproof.

Let us look at the historical data for the trading desk’s net non-operating income and expenses. Since fiscal 2013, the Empress has only recorded a net loss in a single year, which was a negligible 2.6 billion yen drop in 2019. In stark contrast, her net gains have compounded aggressively over the last decade.

• Fiscal 2013 to 2015: Averaged roughly 6.4 billion JPY in net non-operating income annually.

• Fiscal 2021 to 2022: Surged to over 17.2 billion JPY and 17.8 billion JPY respectively.

• Fiscal 2024 to 2025: Logged 14.1 billion JPY and 19.8 billion JPY in net gains.

• Fiscal 2026: Smashed all records with 39.9 billion JPY in gross non-operating income.

This legendary ability to compound surplus cash creates a permanent financial safety net. It ensures that the company maintains ample available funds to proactively pursue massive software development projects, regardless of short-term shifts in business results. Her creative teams can take massive developmental risks without ever worrying about bankrupting the studio.

Furthermore, this financial consistency translates directly into massive shareholder returns. The company has successfully maintained an aggressive 50% dividend payout ratio for 15 consecutive years. Total dividend payouts have skyrocketed from a modest 1.16 billion yen in 2009 to a staggering 18.9 billion yen by 2024.

The non-operating expenses also jumped significantly to 20.09 billion yen, heavily driven by 17.83 billion yen in losses on the sale of investment securities. This high volume of realized gains and losses indicates an extremely active trading desk that is constantly turning over the portfolio to capture market inefficiencies. The net result of this financial engineering was an ordinary profit of 57.0 billion yen, smashing previous corporate records.

Moving to the balance sheet, the financial fortification becomes even more apparent. Total assets ballooned to 313.66 billion yen by the end of March 2026, up from 209.82 billion the previous year. This massive expansion was heavily concentrated in highly liquid current assets and strategic investment holdings.

Balance Sheet Data (March 31, 2026)

• Cash and Deposits: 61,275 million JPY

• Current Securities: 53,882 million JPY

• Total Current Assets: 139,608 million JPY

• Property, Plant & Equipment: 59,216 million JPY

• Investment Securities (Non-current): 101,687 million JPY

• Total Assets: 313,662 million JPY

The combined total of cash, current securities, and non-current investment securities equals roughly 216.8 billion yen. This means that nearly 70% of the company’s total asset base consists of pure financial ammunition. Very few publicly traded entities outside of the banking sector operate with this level of capital density.

The equity ratio remains exceptionally high at 86.7%, indicating almost zero reliance on external debt financing. Retained earnings swelled to 207.3 billion yen, reflecting decades of disciplined capital accumulation. This financial engine does not just support the gaming studio; it actively subsidizes it, allowing for unmatched creative freedom.

When you buy a share of Koei Tecmo, you are buying a slice of this massive liquidity pool. The gaming revenues simply provide fresh capital for Keiko Erikawa’s trading desk to deploy into the global markets. It is a brilliant, self-sustaining ecosystem that the broader market completely fails to comprehend.

Pillar 4: The Margin of Safety

Koei Tecmo Holdings currently trades at a trailing P/E ratio of 11.35x. To put this in perspective, the broader Japanese market index averages considerably higher in the frothy 2026 macroeconomic environment. Buying a highly profitable technology and entertainment company at an 11x multiple is a structural anomaly that rarely lasts.

The enterprise value to EBIT ratio sits at a very comfortable 11.44x. This metric is absolutely crucial because it accounts for the massive net cash and securities position resting on the balance sheet. When a buyer acquires a share of Koei Tecmo, they are essentially buying a massive pile of cash and a high-yield investment portfolio, getting the actual video game development studio for pennies on the dollar.

Competitor Valuation Comparison

• Koei Tecmo Holdings (3635.T): P/E Ratio of 11.35x, Operating Margin of 42.0%, P/B Ratio of 1.97x.

• Capcom Co Ltd (9697.T): P/E Ratio of 23.0x, Operating Margin of 48.5%, P/B Ratio of roughly 4.1x.

• Square Enix Holdings (9684.T): P/E Ratio of 36.2x, Operating Margin of 18.4%, P/B Ratio of 2.86x.

The comparative data illustrates the sheer absurdity of current market pricing. Square Enix is trading at a staggering 36.2x earnings multiple despite suffering from declining top-line revenues and a mediocre 18.4% operating margin. Capcom is appropriately priced for its high performance, but offers absolutely no margin of safety for value investors at 23x earnings.

Koei Tecmo’s Price to Book ratio of 1.97x is modest considering the book value is primarily composed of highly liquid securities. It is not inflated by depreciating physical assets or questionable goodwill from terrible acquisitions. The Piotroski F-Score of 6 confirms the fundamental health of the business operations, indicating strong cash flow generation and solid profitability trends.

Furthermore, the 10-year historical earnings growth rate of 14.7% proves this is not a stagnant value trap. The final pillar of the margin of safety is the aggressive capital return program championed by management. The board targets a consolidated payout ratio of 50%, reflecting a deep commitment to minority shareholders.

For the fiscal year ending March 2026, the company hiked the year-end dividend to 66 yen per share. Based on the May 2026 trading price of approximately 1,531 yen, this translates to a dividend yield of roughly 4.3-4.4%. Getting paid a 4.4% yield to hold a fortress balance sheet in an inflationary Japanese economy is a highly attractive proposition.

Let us do some back-of-the-napkin math to calculate intrinsic value. The current market capitalization is roughly 506 billion yen. If we strip out the 216 billion yen in pure cash and investment securities, the market is valuing the core gaming business at just 290 billion yen.

With the core business generating over 37 billion yen in operating profit, you are paying less than 8 times operating profit for a studio that creates global hit titles. The intrinsic value of the business, when combining the discounted cash flows of the gaming pipeline with the net asset value of the investment portfolio, is significantly higher than the current trading price.

Pillar 5: The Inversion

Charlie Munger famously advised investors to “invert, always invert” to uncover the hidden mechanisms that could destroy an investment thesis.

The most glaring vulnerability is the extreme key-person risk associated with Keiko Erikawa. Born in 1949, the “Empress” is 77 years old as of 2026. While the establishment of Koei Tecmo Corporate Finance aims to institutionalize her trading strategies, it is impossible to perfectly replicate her legendary gut instincts and market timing.

When she eventually steps away entirely, the non-operating income engine could easily stall or misfire. A corporate finance team of salarymen will never manage a portfolio with the same ruthless, entrepreneurial edge as the woman who built it from scratch. This leadership transition is the single biggest unknown hanging over the stock.

The other major risk involves exposure to severe macroeconomic shocks and volatile financial instruments. The company’s willingness to chase yield in complex offshore markets has resulted in significant collateral damage before. In March 2023, Koei Tecmo lost 4.1 billion yen overnight when the Swiss government orchestrated the UBS takeover of Credit Suisse, wiping out all Additional Tier 1 (AT1) bondholders.

While the company absorbed the AT1 loss effortlessly thanks to its massive equity base, it highlights the danger of operating a proprietary trading desk with shareholder capital. If the Nikkei 225 index experiences a severe correction from its current 65,000 peak, the investment portfolio will take a heavy beating.

A massive mark-to-market write-down on securities would completely obliterate the non-operating profit line, making the headline earnings look catastrophic for retail investors.

Final Verdict: The KonichiValue Score

Despite the genuine risks associated with aggressive asset management and generational transition, the fundamental math is entirely too compelling to ignore. The market is pricing this company as if the massive investment portfolio has zero tangible value, entirely dismissing billions of yen in highly liquid assets.

The creation of Koei Tecmo Corporate Finance shows a proactive, intelligent approach to institutionalizing the wealth management division. The robust 4.4% dividend yield ensures that investors are paid handsomely while waiting for the broader market to wake up to the valuation discrepancy. The downside is heavily protected by the cash hoard, making a permanent impairment of capital highly unlikely even in a severe recession.

KonichiValue Score: Strong Buy.

The analysis concludes that Koei Tecmo (3635) is the ultimate contrarian play in a severely overvalued Japanese equity market. It is a remarkably rare opportunity to purchase an elite digital entertainment studio attached to a world-class family office at a steep discount. Investors should accumulate shares aggressively before the institutional market realizes this video game company is actually a heavily armed financial institution.

The numbers are so large they almost lose their meaning. We are looking at a nominal gross domestic product of roughly 665 trillion yen as of 2025, stacked against a gross government debt of 1,342 trillion yen. Depending on the metric, the government debt-to-GDP ratio sits between 230% and a …

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Buying companies because you think they will be bought out is a fool’s errand, and I don’t recommend anyone doing it!

With that said, with the Japanese yen so cheap it’s basically free for foreigners to travel here, buying out Japanese assets have become the hottest trend in financial markets. Also, it’s a favorite pastime of mine to speculate on what companies will be bought out from the Japanese stock market.

I know you, my fellow fans, love to pick my brain on this question. Therefore, I have concocted the five companies that are most heavily target for a buyout this year:

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It takes a profound lack of self-awareness for a politician to govern over three decades of wage stagnation and then act shocked when young people stop spending money.

During a recent Diet session, Finance Minister Satsuki Katayama clutched her pearls over a newly coined phenomenon sweeping the nation: NISA Poverty (NISA貧乏).

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You are reading this because you looked at Nintendo’s stock chart recently and felt your stomach drop into your shoes. The stock has been tumbling in early 2026, plummeting nearly 40% year-to-date to close at an ugly ¥7,667 following the latest earnings report. And now it’s down another 8% since then!

Naturally, you might assume the big, bad hedge funds are shorting it into oblivion.

In fact, the short interest ratio is practically non-existent. The short interest volume actually plummeted by 43.5% in March. Borrow rates for short sellers are hovering between a measly 1.01% and 4.08%. If hedge funds were aggressively betting against Mario, those borrow fees would be skyrocketing.

So, if the shorts are not killing Nintendo, what is?

First, Switch 2 hardware momentum is sluggish. Sales hit 2.49 million units in the March quarter, causing Wall Street to sweat. Second, memory component costs and tariffs are squeezing the company, prompting Nintendo to officially forecast a 100 billion JPY hit to their cost of goods sold. Finally, Wall Street is terrified of a Google AI model called Genie 3 that supposedly makes game developers obsolete.

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But is the market right, or are we seeing the greatest Nintendo undervaluation of the century?

Below, I analyze every bear case driving this sell-off to assess the stock's current investment potential:

The Fake Bear Cases:

Nintendo Switch 2 is a bust?

Currently, the narrative is turning sour because of the Switch 2 transition. The original Switch is long in the tooth. Sales are naturally declining.

The Switch 2 has launched, but the early sales figures are not meeting the hyper-optimistic Wall Street expectations. The company cut their production target from 6 million to 4 million units for the quarter. This caused weak-handed retail investors to panic and sell.

Adding fuel to the fire is Google DeepMind’s Project Genie 3. This AI model can supposedly generate playable video game worlds from simple text prompts in real-time. Tech journalists are screaming that the 200 billion USD gaming industry is dead.

Gaming stocks plunged as a result. Unity software dropped 35%. Nintendo caught the contagion and saw its stock drop 4.75% in a single session.

It’s a weird feeling of deja-vu when I hear this… People claimed mobile games would kill console gaming a decade ago. Nintendo responded by releasing the Switch and selling over 140 million units.

The current panic over the Switch 2 transition is entirely predictable. Every single time Nintendo launches a new console, analysts predict doom. They did it with the DS, they did it with the Wii, and they did it with the original Switch.

AI will make Nintendo obsolete

This is the most widely discussed risk, and it is also the stupidest. In January 2026, Google DeepMind released Project Genie 3. The market completely lost its mind over a tech demo.

• The Tech: Genie 3 generates real-time, navigable 3D environments from text or image prompts.

• The Specs: It outputs at 720p resolution and 24 frames per second.

• The Features: It allows basic interactive physics, like jumping and swimming.

Why pay hundreds of developers for five years to build a Zelda game when an AI can generate one in five seconds? Gaming stocks nose-dived across the board.

Unity dropped 35% in a single day. Analysts downgraded the entire sector, claiming high-fidelity interactive content generation would erode the AAA studio moat. Even major Korean publishers like NCSoft had to release statements defending their business models.

Let me explain why this is pure, unadulterated garbage. Genie 3 generates visual environments, not video games. A video game is not just a landscape you walk around in aimlessly.

A Nintendo game is defined by meticulous, obsessively tuned gameplay loops. It is the exact friction of Mario’s jump. It is the perfectly balanced level design of a Mario Kart track.

An AI hallucinating a pixelated forest cannot replicate the intentionality of Shigeru Miyamoto’s level design. Genie 3 struggles heavily with multi-agent scenarios and lacks full gameplay features. It is a prototyping tool, not a game engine replacement.

Furthermore, Nintendo sells characters, not pixels. People do not want to play “Generic AI Platformer 7.” They want to play as Mario.

AI cannot generate copyrighted intellectual property without facing a nuclear lawsuit from Nintendo’s legal team. The market is conflating the automation of background asset generation with the obsolescence of creative game design. It is a fundamental misunderstanding of the industry.

Competition is killing Nintendo?

Let us compare Nintendo directly to its closest peers. Look at Sony Group Corporation (6758.T). Sony is an incredible company, but their gaming strategy is fundamentally different from Nintendo’s.

Sony focuses heavily on the hardcore, premium audience. They build massive, hyper-expensive machines like the PlayStation 5 Pro. They rely on bleeding-edge graphics to sell their products.

This is a dangerous game. It requires massive capital expenditures. It also puts them in direct competition with high-end PC gaming and Microsoft’s Xbox.

Sony’s financial metrics actually reflect a highly successful, albeit different, strategy. Following the spin-off of Sony Financial Group in October 2025, their balance sheet is pristine. They sit on roughly 2.09 trillion JPY in cash against 1.03 trillion JPY in debt, operating with a robust net cash position.

Their Game and Network Services division is also massively profitable. It pulled in a record 140.8 billion JPY in operating income during Q3 FY2025. However, Sony remains a massive conglomerate relying heavily on third-party software and bleeding-edge hardware.

Nintendo does not play this game. They focus on the mass market and casual gamers. You do not buy a Nintendo console for the graphics.

You buy a Nintendo console because it is the only legal way on earth to play Mario, Zelda, and Pokemon. That is the moat. Their intellectual property is impenetrable.

You can have all the processing power in the world, but if your kid wants to play Mario Kart, you are buying a Nintendo. This gives them incredible pricing power. Nintendo rarely discounts their first-party games, even years after release.

Furthermore, Nintendo is actively expanding beyond video games. They are finally monetizing their IP in the broader entertainment world. They launched The Super Mario Galaxy Movie globally on April 1, 2026, and it generated a staggering worldwide box-office gross of over $800 million USD in its first four weeks. They also have a live-action Legend of Zelda movie slated for May 2027.

This creates a self-sustaining flywheel. You watch the Mario movie. You buy the Mario game.

You visit the Super Nintendo World theme park. You buy the plush toy. Every piece of media feeds into the core software business.

Competitors simply cannot replicate this. Microsoft can buy Activision Blizzard for 69 billion USD, but they cannot buy cultural relevance. Master Chief does not sell theme park tickets like Mario does.

You might argue that Microsoft bought cultural relevance when they acquired Minecraft. You are completely right that Minecraft is a global phenomenon. However, Microsoft never figured out how to connect Minecraft to them, because there is no synergy between them and Minecraft.

So you end up with even Nintendo’s richest competitor failing to become a threat. Master Chief does not sell theme park tickets, and Steve from Minecraft does not force anyone to buy an Xbox.

This is the ultimate competitive advantage.

Nintendo’s finances are weak?

At first sight, this sounds absurd. In the fiscal year ended March 2026, Nintendo’s net sales absolutely exploded by 98.6% year-over-year to 2,313.0 billion JPY. Operating profit jumped 27.5% to 360.1 billion JPY.

However, Wall Street fixated on the profitability ratios. Because hardware made up a massive 66.7% of sales, Nintendo’s gross profit ratio cratered from 61.0% down to 39.3%. Operating profit margins also compressed severely from 24.3% down to 15.6%.

But look at the balance sheet. Nintendo is sitting on a war chest of 1,791.8 billion JPY in cash and deposits. They completed a share buyback in March 2026, acquiring and canceling 11.43 million treasury shares for 99.9 billion JPY. While this is a drop in the bucket compared to their total reserves, this massive cash position puts a hard floor on the stock price.

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The Genuine Threats:

Too expensive to make the Switch 2?

This is the most legitimate threat to Nintendo’s short-term profitability. The bill of materials for the Switch 2 is skyrocketing. It is a genuine headache for management.

• DRAM Costs: The 12GB LPDDR5X modules used in the Switch 2 have seen a massive 41% price increase this quarter.

• NAND Costs: The 256GB NAND flash storage has risen by roughly 8%.

The bill of materials for the Switch 2 is skyrocketing. Nintendo officially warned that rising component prices, particularly for memory, and US tariff measures will slap an approximate 100.0 billion JPY impact onto their cost of goods sold for the coming year. Morgan Stanley analysts actually believe this 100 billion JPY estimate is too conservative given the expected surge in DRAM and NAND pricing.

Nintendo’s entire hardware philosophy relies on using cheap, commoditized components. This sudden spike in memory pricing destroys their hardware margins. They are used to making a profit on day one, not taking a loss like Sony or Microsoft.

And they are sticking to that strategy. They are raising prices:

This is a risky move. Morgan Stanley warned that this price increase, combined with already sluggish Q4 momentum, warrants a cautious view on the pace of Switch 2 adoption. Raising prices mid-launch-window alienates the core casual audience.

Sure, this might slow down Switch 2 adoption, but this is still the cheapest console you can buy.

No good games?

The Switch 2 needs killer games to move hardware. Right now, the visibility is incredibly murky.

• Pokemon Pokopia: Estimated 3.5 million shipments in Q4, performing well but needs to hold momentum.

• Mario Kart World: Rapid shipment deceleration, with UBS predicting only 1.5 million shipments in Q4.

• Upcoming Exclusives: Pokemon Winds & Waves is not slated until 2027.

If Nintendo does not announce a massive lineup of first-party titles soon, hardware sales will stagnate. Investors are desperately waiting for the next Nintendo Direct presentation. They need to see titles like the new 3D Mario or the rumored Fire Emblem: Fortune’s Weave.

Sure, they now have Yoshi and the Mysterious Book slated for May 2026 , Star Fox arriving in June 2026 , and Splatoon Raiders scheduled for July 2026. But again, none of these titles are enough to truly make the Switch 2 a must have console.

A weak pipeline is the fastest way to kill a console launch. The Wii U failed largely because of software droughts. If Nintendo repeats that mistake, the stock will bleed further.

Conclusion: Buying the Panic

In this analysis, I have established that the short sellers are practically non-existent. I have also established that Google’s Genie 3 is a hallucinating prototype, not a replacement for creative game design. The true headwinds are entirely cyclical, stemming from elevated RAM costs and the bold, risky decision to jack up the retail price of the Switch 2 to protect margins.

Wall Street is notorious for punishing cyclical transition years in the hardware business. They are completely ignoring the fact that a massive portion of Nintendo’s market capitalization is just cash sitting in a vault.

When you back out the 1,791.8 billion JPY in cash and deposits, you are buying the core operating business at a steep discount. You are buying a premier entertainment monopoly that owns the childhoods of multiple generations. You are paying a discounted multiple for Mario, Zelda, and a business model that captures margin at every single step.

This is the essence of value investing. You buy a phenomenal business when temporary friction causes weak-handed investors to panic. The margin of safety is built entirely on that cash pile and the unbreakable strength of their intellectual property.

I do not care if memory prices force retail price hikes and compress adoption for a quarter or two. I care about the recurring software revenue and console adoption over the next decade. Buy the dip, collect the 219 yen dividend, and wait for the market to wake up to reality.

Nintendo just dropped their full-year earnings report for the fiscal year ending March 2026.

Nintendo’s FY26 earnings here

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So I can only assume you have no idea what an incredible company this is!

This is why I am going against democracy to explain it to you:

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I have to admit a bit of personal bias here. I used to work in the construction industry in Sweden, so I know more than the average stock picker what construction workers think, how they act, and what makes them curse at a piece of equipment and kick its treads in utter frustration.

Takeuchi is a really quirky gem. It is the company that effectively invented the compact excavator in 1971 and the compact track loader in 1986. Yet, it remains relatively obscure to mainstream global investors who are too busy throwing their money at the recognizable yellow paint of Caterpillar (CAT) or the massive mining rigs of Komatsu (6301.T).

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In this exhaustive report, I will break down the narrative, performance, competitors and most importantly, if Takeuchi is a certified KonichiValue Buy stock or if it should stay hidden in the dirt.

Grab a coffee, because we are going to get deep into the mud:

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However, his core message in the Diamond.jp piece is surprisingly doompilled: If you are over 70 years old, you have absolutely no reason to hold Japanese stocks right now.

Kiyohara summed up his view of the current Japanese stock market with one phrase: “A star shines brightest before it burns out.”

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A Real Buy-and-Hold Portfolio for Japan

Today, I’m sharing my wife’s buy-and-hold portfolio. It’s a real-world example for anyone who wants to own great assets in Japan without the stress of active management.

Like some of you here, my wife wasn’t initially interested in finance. She was taught to hoard cash and rely on the national pension. To get her on board, I pointed out two harsh realities:

• With over 30% of Japan’s population aged 65 or older, relying on the state is a massive financial risk.

• As prices rise, uninvested cash loses purchasing power every single day.

She listened and started maxing out her NISA in 2022.

The way she sets up her portfolio is that I pitch individual Japanese value stocks for her approval, and she personally selects her funds.

My Wife’s Stock Portfolio:

Here it is mostly my strategy, and it is simple: I look for companies where the market overreacts to short-term noise and ignores long-term structural advantages.

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Stock Snapshot

• Ticker: TSE: 3923

• Sector: Software and IT Services (SaaS)

• Current Price: 882 JPY

• Market Capitalization: 318.1 billion JPY

• Trailing P/E Ratio: 26.5x

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These companies do not have developers. They have an aging workforce that is actively hostile to changing their daily routines. The idea that a 60-year-old accounting manager in Osaka is going to sit down and vibe-code a secure, legally compliant, cloud-based expense reimbursement system is a pure Silicon Valley delusion…

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For Japan, a country that has struggled to produce world-class software for decades, this looks like the final nail in the coffin, explaining why investors are sprinting for the exit.

However, the idea that SaaS is dead ignores how enterprises actually operate. While investors debates vibe coding and DIY apps, enterprises prioritize service level agreements and uptime above all. And in Japan this is even more true: Corporate culture here is far more conservative. Once a company decides on a software provider, they stay anchored to it.

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Enter Japan.

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