Japan’s Declining Birthrate and Growing Toy Market
In 2024, the number of babies born to Japanese parents dropped below 700,000 for the first time since records began in the late 19th century. While that figure itself is startling, two significant surprises caught the attention of investors.
First, the speed at which Japan’s birthrate is falling has accelerated beyond earlier projections. Government demographers had not expected the annual number of newborns to dip below 700,000 until at least 2039.
The second surprise is a bit paradoxical. Despite this decline in births, the Japanese toy market experienced an impressive 8% growth in 2024, reaching record sales of $7.4 billion. So, while there may be a shortage of children, there seems to be no shortage of adult consumers.
This scenario isn’t isolated to Japan—globally, adults are engaging with a wide array of collectibles, such as trading cards and character merchandise, which Japan has been producing for decades.
These observations underline the importance of going deeper than surface-level data, as there could be a fascinating narrative about Japan undergoing a significant transformation.
Alongside the declining birthrate, Japan also saw a sharp increase in deaths in 2024, leading to a record population of 909,000 within Japan. The country faces the dual challenge of an aging population and a shrinking workforce, raising concerns about sustaining its economy as it currently operates.
Analysts suggest that the resilience of corporate engineers in this context is the key narrative for Japanese investment at the moment. Themes such as automation, practical AI application, and both domestic and international mergers and acquisitions are likely to dominate the story of Japanese stocks in the foreseeable future.
Additionally, Japanese stock markets find themselves in a favorable position as US investors look to diversify their portfolios. Naomi Fink, chief global strategist at Amova, pointed out that the Topix index recently hit an all-time high. Comparisons to US stock evaluations highlight that Japanese stocks are becoming increasingly attractive.
“The general view is that trends will likely continue upward. There’s a labor shortage that hasn’t fueled inflation yet,” Fink observes. She mentions that many Japanese companies are shifting production overseas to maintain greater proximity to their customers.
Fink notes that global managers seeking to mitigate risks in the US market see Japan as offering unique opportunities for uncorrelated returns. Following a long period of reluctance, locals are starting to invest in the stock market, while institutions are profiting in the US, prompting many to lock in gains and invest in yen-denominated assets.
“Japan has several factors that help cushion potential downturns. Many global investors are averse to risk; they prefer stable environments where losses are limited,” she adds.
This sense of optimism is underscored by the Topix’s recent record highs, supported by sustainable foreign investments, according to Goldman Sachs chief equity strategist Bruce Kirk. He suggests that the current conditions might lead to significant upward movement in stock valuations.
Kirk emphasizes, “The grail of investing in Japan lies in the stable circle of growth we’re currently experiencing. Looking ahead, this consolidation could lead to improved stock returns and a more in-depth reevaluation of the market.”
Many investors are keeping a close eye on the Tokyo stock market, which has historically been overlooked by global fund managers, leading to a smaller share in the global equity index. Changes in corporate and governmental practices are nudging businesses towards reform, which many are seeing as a long-overdue transition.
Schrikanth Kahle, a quantitative strategist at Jeffries, mentions that institutional interest in Japan is rising. Companies are gradually becoming more shareholder-friendly, evidenced by record stock buybacks and dividend hikes that have lifted Japan’s stock yields to nearly match those in Europe.
“The overall sentiment is that there’s a strong potential for upward trends. Japan’s growth trajectory looks promising,” says Naomi Fink.
As investors increasingly revisit the Japanese market, the crucial question becomes where true value lies. Martin Schultz, chief policy economist, states that companies that have weathered economic challenges—particularly those with money and technology—are likely to thrive, while others may not survive the shifts.
“Some firms will falter, while others will significantly improve. The market is evolving in multiple directions, so investors must seek out where value lies. There’s potential to discover worthwhile opportunities in every sector in Japan,” Schultz concludes.
