Contrary to popular belief, Japan is Actually Ridiculously Cheap
Japanese products and stocks are probably way cheaper than in your country!
I remember when I first heard about the insane prices in Tokyo. I would listen to stories from my dad about how you had to waive a ¥10,000 ($80) bill just to get a cab to stop, or how the land under the imperial palace used to be worth more than all the land in the entire state of California!
These titillating tales have stuck, and most people still believe that Japan is as expensive as ever.
This could not be further from the truth.
Below is the famous Big Mac index. It’s an index that takes the McDonald’s Big Mac; an item that has the same quality and demand the same effort to produce anywhere in the world, but which price is vastly different in each country based on the country’s overall cost of living, taxes, tariffs etc.:
As you can see from the index, the birthplace of the Big Mac, the United States, charges 60% more for the burger than Japan.
In fact, even countries that are still catching up to Japan’s GDP, most notably South Korea, are charging more for a Big Mac.
The Big Mac index is not an exact science, but it is a good indicator of just how cheap Japan has become.
Why has Japan Become so Cheap?
Over 30 years of deflation and stagnant salaries have perhaps not made Japan poorer, but the rest of the world have gotten much richer.
Also, When Japan’s mega asset bubble burst in the early 90s, Japanese people became extremely risk averse and price sensitive.
There is a story of a Yakitori (chicken skewer) chain that raised their prices by ¥20 (18 cent), and lost 30% of their revenue in 3 months (link HERE)!
Naturally, companies would rather be caught dead than raising their prices by even a cent!
This has turned Japan into the country of good deals: Everything from food to electronics can be found at a discount in Japan, and even as the wave of inflation is sweeping the world right now, Japan’s prices have barely budged!
What About Japanese Stocks?
Turns out the Japanese price sensitivity have reached its stock market too.
For all of you who are following my blog, you know how I filter out the absolute most undervalued companies on any stock market:
My Value Vetting Strategy:
A P/E less higher than 6 but lower than 25
An average Earnings Growth higher than 7 over the past 7 years
Return on Equity at at least 10%
A dividend yield higher than 0.5%
Net debt / EBITDA lower than 2
If you apply this filter on the biggest stock markets in the US, only 57 pass through.
However, if you put the same filter on the biggest stock markets in Japan, a whopping 119 companies pass through.
That is 52% more companies than in the US!
This is despite the fact that Japan has less than half of the companies publicly traded in the US, so the ratio of extremely valuable companies is in fact far higher.
Undervalued Japanese companies are of far higher quality that their American counterpart
Another factor to consider is that many of the most “undervalued” companies on the US stock markets are in stagnating or controversial industries; like the weapons manufacturer Lockheed Martin, or the oil producer Exxon Mobile.
Sure, there are a couple of these “impure” undervalued companies in Japan too, but they are far fewer.
On the contrary, exceptionally high-quality companies are still undervalued in Japan.
For example, one of the world’s most renowned gaming companies, Nintendo, in trading at a P/E of 13 or the sustainable ESG compatible mobile house builder Sankyo Frontier is trading at a P/E of 9!
For more info about these undervalued companies, read my article “The 8 Most Undervalued Stocks in Japan” HERE).
Conclusion
So, what do I want to say with this short story of how Japan has become a dream destination for Cheapos?
Well, the first point is that when Covid-19 has subsided and we can travel freely again, I would highly recommend all of you to visit this amazing country with possibly the best value for money of any destination.
The second point is that the Japanese stock market is a paradise for value investors.
Because so many people still believe Japan is expensive and unattractive for investments, companies that would be praised to the heavens on other stock markets are trading for scraps here.
So, if you are a serious value investor, Japan is maybe the best market in the world for cheap, reliable and high quality stocks!