CAPE (Shiller PE), P/E & Yield of Japanese Stock Market

Shiller PE for public Japanese companies is currently 24.69 (9/30/2016). The current CAPE ratio is lower than its historical average which would indicate that the Japanese stock market is currently undervalued. However, the country’s equity market has been characterized by periods of extremely high valuations which make the average value very high. The average P/E (TTM) for Japanies companies is 22.15 and dividend yield is 1.93%.

Japanese Stock Market: CAPE Ratio, P/E & Yield



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Japan Shiller PE CAPE Graph Chart

Historical valuations of Japanese equities

The chart above shows the Shiller PE ratio for Japanese stock market since 1980. The graph includes also the 3-year forward return of Nikkei 225 index in order for you to examine the relationship between CAPE and stock returns (the axis for the forward return is inverted). A negative correlation between the ratio and stock market performance is visible even though the returns remained low during the last years of 1990 despite the low P/E 10.

There exists two clear spikes when CAPE has been extremely high. The first peak started to form in 1992 when the Japanese Asset Price bubble started to gain momentum. The ratio kept steadily rising until the boom reached its peak during the summer of 1990 when stocks were valued at ridiculous levels. After the stock prices crashed, CAPE quickly decreased from 90 to 35.

Between 1992-2002, Japan’s CAPE fluctuated between 25 and 40 which is still quite high compared to the stock markets of other countries. At the beginning of 2003, the ratio started its way towards another summit. Japanese stock prices started to surge and in January 2006 the country’s P/E 10 exceeded 70. The ratio dropped quickly back to 55 and very soon the global financial crisis dropped it even further to 25. During the last five years, Japan’s CAPE has stayed between 20 and 30.

Japan CAPE Large Cap Small Cap Companies

About CAPE (P/E 10) ratio

Cyclically adjusted price-to-earnings was popularized by Robert Shiller who introduced the ratio to evaluate the valuation of S&P 500 index. It means the stock price divided by the ten year average earnings-per-share, both adjusted for inflation. It has been demonstrated that higher CAPE is associated with lower than average stock returns. Professor Shiller is publicly sharing his dataset for S&P 500 that is kept always up to date. Examining the Excel is the easiest way to understand how the ratio is calculated.

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