Key facts
- Japanese margin trading volume reached 123 trillion yen in July, doubling in six months.
- Retail investors are leveraging positions in high-priced AI and other stocks.
- The Nikkei 225 has gained approximately 30% year-to-date, outperforming the TOPIX.
- Companies involved in the AI supply chain, such as Resonac and Mitsui Kinzoku, have seen significant stock price increases.
- Valuation multiples for Japanese equities have risen, with the Nikkei 225 trading at 22.7x forward earnings.
Margin trading in Japan has surged, with volumes reaching 123 trillion yen in July, doubling from six months prior. This boom is fueled by retail investors leveraging positions in high-priced artificial intelligence and other stocks, thereby increasing market liquidity.
The Nikkei 225 has seen a significant rally, gaining approximately 30% year-to-date and notably outperforming the broader TOPIX index. This divergence is attributed to the Nikkei 225's price-weighted structure, which amplifies the impact of high-priced, AI-linked constituents. Technology, materials, and financial sectors have been standout performers, with many companies deriving substantial earnings from the AI supply chain.
Companies like Resonac, a chemical manufacturer with a dominant global market share in advanced packaging materials for semiconductors, and Mitsui Kinzoku, whose copper foil is crucial for high-end packaging substrates, have experienced substantial stock price increases. This reflects a structural re-rating of firms embedded in the AI hardware buildout.
However, the market's gains have led to stretched valuations. The Nikkei 225 now trades at 22.7 times forward earnings, and the TOPIX at 16.7 times, both exceeding their 10-year historical averages. While first-quarter 2026 results showed a respectable 14% year-on-year profit growth for TOPIX constituents, this was about 12% below analyst expectations. Despite this, forward estimates for Japanese corporates have been revised upward, indicating continued confidence in earnings growth, though the narrow margin for error at current multiples is a concern.
The Bank of Japan's evolving policy and the carry trade risk add complexity to the macroeconomic backdrop.