Amid Japan's Stock Rally, the Individual Investor Returns

Atsushi Moriyama, owner of a bookstore in the heart of Tokyo’s financial district, gauges the market by sales of the Kaisha Shikiho—in English, the Japan Company Handbook. Since December, the bible of Japanese stocks has been flying off the shelves at Yuhodo, his shop in the Kabuto neighborhood. “One look at the sales figures and you knew this rally was going to keep going,” he says.

The store is down to its last 30 copies of the 400 ordered for the quarter ended in January. The Shikiho’s publisher, Tokyo-based Toyo Keizai, says it’s run out of the latest edition, a sign that individual investors, many of whom grew up believing stocks only went down, are back. The Nikkei 225 Stock Average closed on Feb. 6 at its highest level since September 2008, after a 12-week rally that was the longest since 1959. From the start of the rally in November, the Nikkei is up 32 percent.

Sales of the Shikiho—a reference guide that packs facts and figures on Japan’s more than 3,500 listed companies into a tome about as thick as a Gideons Bible—is just one indicator of the change in investor sentiment. Nomura Holdings (NMR), Japan’s biggest brokerage, says 50,000 people applied for its stock seminars in December, up 75 percent from a year earlier. The seminars dispense advice on the markets and explain how investors may be affected by the government’s economic policies. Active online brokerage accounts at Matsui Securities reached a record 129,765 last month; 15,351 accounts were activated in January, compared with 542 in October before the rally began.

Noriko Hachiuma, an office clerk in her sixties, says she may be ready to test the waters again after losing about 2 million yen ($21,000, at today’s rate) a decade ago. “I don’t usually follow the market and I don’t know much about stocks, but this rally got my attention,” she says, browsing investment magazines at Yuhodo. A day trader, Takeshi Iwamoto, is more skeptical. “The bull market won’t last long,” he says. “I’m looking for the right time to sell.”

The Nikkei started its rocket ride late last year as the country’s new prime minister, Shinzo Abe, pledged to pull the economy out of a slump with a giant stimulus plan while pushing the Bank of Japan to loosen monetary policy. Despite the rally, the benchmark index still trades 71 percent below its 1989 peak.

The reluctance of Japan’s households—which have 1.5 quadrillion yen in wealth, an amount equal to the U.S. national debt—to return to the market may be one of the reasons shares haven’t rebounded sooner. Stocks only accounted for 5.8 percent of household assets in September before the rally took off, according to the latest Bank of Japan figures. That compares with 32.9 percent in the U.S., 14.3 percent in Europe—and 23 percent in Japan back in 1988.

The turnaround in Japanese stocks may have less to do with Abe’s policies than with the strength of the country’s companies, which have shut unneeded factories and learned to cope with a stronger yen, says Jesper Koll, head of Japan equity research at JPMorgan Chase (JPM). “The No. 1 reason why we are on the verge of a major turning point is Corporate Japan is healthy,” says Koll.Toyota Motor (TM), the nation’s biggest company, on Feb. 5 raised its forecast for operating income to 1.15 trillion yen, the most in five years. The projection was based on the assumption the yen would trade at 81 per dollar, about 15 percent stronger than today’s rate of 93.43. The automaker says its operating profit rises 35 billion yen for every yen the currency weakens against the dollar.

While the current trading frenzy may bring to mind the old saw that you know it’s time to sell when the shoeshine boys are giving stock tips, Moriyama says market madness comes in many shades. “In 2005, couples used to come in together to buy books on stocks,” he says, explaining that before that year’s stock surge, visiting a financial bookstore had not been high on the list of what to do on a date. “There was a buzz in the store that was totally different from normal,” says Moriyama. “When it gets like that, you know stocks have hit a peak. And we’re not quite there.”

The bottom line: The Nikkei stock index has risen for 12 straight weeks, the longest rally since 1959. Ordinary Japanese are betting it has further to go.

BusinessWeek.com