CAPE ratio (Shiller PE) of all public Japanese companies is currently 22.09 (12/31/2019). The current CAPE ratio is significantly 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 Japanese companies is 21.44 and dividend yield is 1.90%. The table includes also the dividend yield and total return of the Nikkei 225 stock index.
For comprehensive data, check the Global Equity Valuations Researcher Dataset by Siblis Research.
Japan Stock Market (all public companies): P/E, CAPE Ratio & Yield
For full historical valuation data for Japanese equity market, subscribe for the Global Equity Valuations Researcher Dataset by Siblis Research that provides current and historical P/E (TTM) ratios, forward P/E ratios, CAPE ratios, dividend yields, market cap to GNI ratios, sector breakdowns and long-term interest rates of the largest economies and stock markets in the world. Check a sample dataset from here.
Historical valuation of the 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.
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.