Schroders global investment manager for Japanese equities, Masaki Tatsuzawa, stated that since the beginning of 2024, the Japanese stock market has recorded a strong increase, with the Nikkei 225 index surpassing the previous peak during the bubble economy in December 1989. Strong performance of the Japanese stock market is attributed to the solid fundamentals of Japanese companies, improvements in corporate governance standards, and continued growth in demand from foreign investors. Considering the recent speed and nature of the increase in the Japanese stock market, investors may need to remain cautious in the short term. Due to the ample liquidity, large cap stocks may continue to perform well, leading to slightly higher valuations for many large companies (especially constituents of the Nikkei 225 index). It is expected that the focus of the Japanese stock market will shift from large companies to small and medium-sized enterprises. Tatsuzawa pointed out that the recent strong performance of the Japanese stock market is driven by several factors, including corporate profit growth and improvement in fundamentals. Additionally, overall profits of Japanese companies are on the rise, with many companies raising their future profit forecasts in the latest quarterly earnings announcements. This indicates that corporate profits have reached record highs, and this trend is expected to continue in the coming years. Companies focusing on domestic operations in Japan have particularly excelled, with strong demand and signs that Japanese companies are regaining pricing power for the first time in decades as a response to inflation. The importance of pricing power cannot be underestimated after years of deflationary trends. Furthermore, wage increases and rising consumer purchasing power will drive strong profit growth for companies. The increased profits can further boost the economy through rising wages, leading to a more positive growth cycle that Japan has lacked in recent generations. Meanwhile, the Tokyo Stock Exchange continues to take various measures to promote corporate governance reform. With ongoing improvements in reform, the Japanese stock market, which had long been overlooked by foreign investors, is gradually attracting global attention. Particularly as the stock market rises, share buyback activities in Japan are increasing, with expectations that buyback activities will continue to lead to more companies increasing stock buybacks and addressing the long-standing issue of undervalued stocks. Tatsuzawa emphasized the need for investors to remain cautious due to developments in the money market and monetary policy, especially with the significant depreciation of the Japanese yen. This is largely related to the results of the "Shunto" (major spring wage negotiations) in 2024. Preliminary reports show that the average increase in wage negotiations in 2024 exceeded 5% for the first time in 30 years. While this further reflects Japan's economic recovery sustained inflation, and is a positive factor for long-term investment in Japanese stocks, in the short term, it may undermine investor confidence. As expected in financial markets, the Bank of Japan is likely to tighten monetary policy, ending the era of negative interest rates. Despite these adverse short-term factors, there are many reasons to believe that the Japanese stock market may maintain a leading position in the longer term. With solid fundamentals of Japanese companies, inflationary benefits, and many Japanese companies regaining pricing power, the Japanese stock market remains one of the most attractive investment opportunities globally. Additionally, corporate governance reform is expected to continue as a structural driving factor, with investors, companies, and regulatory bodies working together to improve corporate governance standards, enhance returns, and boost growth prospects. Although the effectiveness of these measures is becoming increasingly apparent, there is still ample room for progress. Benefiting from the new Japanese individual savings accounts, a large number of retail investors in Japan are pouring into the stock market. Optimized Japanese individual savings accounts have raised the tax-free investment limits for individual investors and are permanently tax-free. This change comes at a time when the Japanese public is becoming aware of the impact of sustained inflation on their financial assets. With strong returns from the Japanese stock market and continued inflation, it is expected that funds will continue to flow into the stock market through Japanese individual savings accounts. In conclusion, Tatsuzawa stated that these factors are driving global investors to regain confidence in the Japanese stock market. As positive trends in Japan are better understood by investors, demand for the Japanese stock market will continue to rise. Although the overall valuation of the Japanese stock market appears reasonable, it conceals significant differences between large and small companies, with valuations of large companies relatively fair and valuations of small companies overall more attractive.