How to find undervalued Japanese stocks

Japan spent thirty years as the market value investors admired and avoided. Corporate governance reform and Berkshire's trading house stakes changed that conversation — but the analysis still has to be done company by company, and there are checks here you don't need at home.

By Nathan Wickham-Hurd · Founder, Oak Growth · First-class Economics & Finance, MBA · Last reviewed August 2026

Why Japan keeps coming up in value conversations

For most of three decades Japanese equities were the market value investors talked about and didn't buy. Balance sheets were loaded with cash and cross-shareholdings, returns on equity were low, and managements showed little interest in what the share price did. A great many companies traded below the value of their own net assets.

Two things changed the conversation. In 2023 the Tokyo Stock Exchange began publicly pressing companies trading below book value to publish plans for improving capital efficiency — an unusually direct intervention from an exchange, and one that put buybacks, dividends and the unwinding of cross-shareholdings on the agenda. And Berkshire Hathaway's stakes in the five big trading houses, first disclosed in 2020 and increased since, made the case in public that Buffett-style analysis pointed at Tokyo.

None of that makes Japanese shares cheap today. Reform narratives get priced in, sometimes ahead of the reform. The point is that the conditions which historically kept value trapped — managements indifferent to shareholder returns — are the exact conditions now under pressure to change.

What to check that you wouldn't check at home

Net cash, and whether it will ever be used

A Japanese company holding cash and securities worth a large share of its market capitalisation looks like a bargain on paper. The question is governance: is there a stated policy on returning capital, a buyback history, a reducing count of cross-shareholdings? Cash that will never be distributed or reinvested at a decent return is worth less than face value to an outside shareholder.

Price to book, in context

Japan is the market where price to book earns its keep, because so many businesses are asset-heavy and the exchange itself has made sub-book valuations a policy issue. It is still not a standalone signal: a low multiple on assets earning a poor return is arithmetic, not opportunity.

Return on equity and where it comes from

Japanese ROE has historically run below US and European levels, partly because of those over-capitalised balance sheets. Look at whether improvement is coming from better operating margins or simply from shrinking the equity base through buybacks. Both raise the number; only one makes the business better.

Currency

A sterling-based investor owns two positions at once: the business and the yen. A yen move can swamp several years of operating progress in either direction. Decide deliberately whether you want that exposure — and note that many Japanese exporters benefit from a weak yen in earnings terms even as it costs you on translation.

Conglomerate structure

The trading houses and larger industrials span energy, metals, food, logistics, chemicals and finance in one entity. That breadth is genuinely defensive, but it makes a single discounted cash flow a blunt instrument. Sum-of-the-parts thinking helps, and so does asking which segments actually earn their cost of capital.

Where the moats are

Japan's durable competitive advantages tend to sit in unglamorous places: factory automation and robotics, precision components, semiconductor production equipment and materials, specialty chemicals, industrial machinery. These are businesses with decades of process knowledge and long-standing customer relationships, often supplying inputs no one outside the industry has heard of. That is a real moat, and it is frequently priced more cheaply than a comparable US business doing the same job.

The practical obstacles

Disclosure. English-language reporting has improved a great deal but is still thinner than a UK or US investor is used to, and some smaller companies disclose meaningfully in Japanese only.

Access. Not every UK broker offers direct Tokyo trading. Where they don't, exposure comes via ETFs or trusts, which brings its own trade-offs — see what an ETF is.

Withholding tax and settlement. Dividends are taxed at source, and treaty relief and reclaim procedures vary by broker and account type. Worth checking before you build a position for income.

Screening it in practice

Oak Growth covers 60 Japanese companies alongside eight other markets, applying the same four pillars — moat, management, economics and value — and publishing an estimated intrinsic value and margin of safety for each, so Japanese names are compared on the same basis as UK and US ones rather than on a separate set of rules.

Compare Japanese companies on the same four pillars

Oak Growth scores 60 Japanese companies alongside the UK, US, European, Hong Kong and Australian markets — intrinsic value, margin of safety, moat, management, economics and value on one screen.

Explore Oak Growth

Common questions

Are Japanese stocks undervalued in 2026?

Parts of the market have historically traded on lower multiples than US or European equivalents, particularly asset-heavy industrials and companies below book value. Whether any individual company is undervalued still depends on what its cash flows are worth against its price, not on the market's average multiple.

Why did Warren Buffett invest in Japanese trading houses?

Berkshire Hathaway disclosed stakes in the five major trading houses in 2020 and has increased them since. Publicly stated reasoning has centred on durable diversified earnings, low valuations relative to those earnings, dividend policies and management willing to return capital — the same tests applied anywhere else.

What is the Tokyo Stock Exchange price-to-book reform?

From 2023 the exchange began publicly pressing listed companies persistently trading below book value to disclose plans for improving capital efficiency. It has encouraged buybacks, higher dividends and the unwinding of cross-shareholdings, which are the structural issues that historically kept Japanese valuations low.

How do UK investors buy Japanese shares?

Some UK brokers offer direct access to Tokyo-listed shares; others provide exposure only through funds, ETFs or investment trusts. Either route leaves you holding yen exposure alongside the business itself, and dividends are subject to withholding tax at source, so check the treatment your account gets.

Also see: Undervalued European stocks → · Undervalued UK stocks → · Warren Buffett's investment strategy →