Nikkei 225 Hits Record Highs: What Australian Investors Need to Know in 2025

The Nikkei 225, Japan’s benchmark share index, is making global headlines in 2025. After decades of stagnation, it’s finally surpassed its previous all-time high, sending ripples through international markets—including Australia. But what’s fueling this rally, and should Australians consider exposure to the Japanese stock market?

Japan’s Economic Renaissance: What’s Behind the Nikkei’s Rally?

Japan’s stock market has confounded expectations. After years of sluggish growth, deflation, and an aging population, the Nikkei 225 smashed through the 40,000-point mark in March 2025—a level not seen since the asset bubble of the late 1980s. Several key factors are driving this resurgence:

• Corporate Reform: Japanese companies are embracing governance reforms, improving transparency, and boosting shareholder returns via dividends and buybacks.

• Global Demand: Japanese exporters are benefiting from a weaker yen, making goods like electronics and automobiles more competitive abroad.

• Foreign Investment: International investors are pouring money into Japanese equities, attracted by low valuations and structural reform momentum.

• Monetary Policy: The Bank of Japan has finally begun a cautious exit from negative interest rates in 2025, signalling confidence in economic stability.

For example, tech giants like Sony and Toyota have reported record profits, while financial firms such as Mitsubishi UFJ Financial Group are expanding overseas. The Tokyo Stock Exchange’s push for better capital efficiency has also prompted conglomerates to divest non-core assets, unlocking shareholder value.

How Does the Nikkei Compare to the ASX?

Australian investors are no strangers to international diversification, but the Nikkei’s performance in 2025 is outpacing the ASX 200 by a significant margin. While the ASX has posted steady single-digit growth, the Nikkei 225 is up over 25% year-to-date. Key differences include:

• Sector Composition: The Nikkei is heavy on technology, robotics, and manufacturing, whereas the ASX leans toward resources and financials.

• Demographics: Japan faces a shrinking workforce, but automation and AI investments are offsetting some of the drag.

• Currency Dynamics: The AUD/JPY exchange rate can impact returns for Australian investors, adding an extra layer of complexity and opportunity.

ETFs tracking the Nikkei, such as the BetaShares Japan ETF (ASX: HJPN), have seen record inflows from Australians looking to capture Japan’s upside while hedging currency risk.

Should Australians Invest in Japan in 2025?

With the Nikkei’s rally in full swing, Australian investors are weighing up whether to allocate more to Japanese equities. Consider the following factors:

• Valuations: Despite the run-up, Japanese stocks still trade at lower price-to-earnings ratios compared to US or European peers.

• Portfolio Diversification: Japan offers exposure to global supply chains, advanced manufacturing, and companies at the forefront of robotics and automation.

• Risks: A reversal in monetary policy, geopolitical tensions, or a sudden strengthening of the yen could impact returns. Currency-hedged ETF options help manage FX risk.

• Access: Australians can invest via ETFs listed on the ASX or through international brokerage accounts, often with low minimums.

In 2025, many Australian super funds are also increasing their exposure to Japanese assets, citing Japan’s renewed corporate focus and stable political environment as positives for long-term growth.

What’s Next for the Nikkei—and Global Markets?

Japan’s stock market renaissance is more than just a local story; it’s part of a broader shift in global capital flows. With US tech stocks looking expensive and China’s economy slowing, Japan is emerging as a compelling alternative for growth-focused investors. Still, the Nikkei’s breakneck rise has prompted some analysts to urge caution, warning that expectations are now running high.

As Australia’s investment landscape continues to globalise, keeping an eye on the Nikkei—and understanding what’s driving its momentum—can help savvy investors spot new opportunities and manage risk in a rapidly changing world.