Nintendo and Sony Lead Japanese Stock Surge, Outpacing Automakers for the First Time
A resurgent Japanese stock market is being driven by entertainment giants like Nintendo and Sony, marking a significant shift away from the automotive sector that previously dominated gains. The Nikkei stock index closed at 40,487 on Thursday, a 1% increase and the highest level since July 17, 2024, demonstrating remarkable resilience after facing challenges like last August’s “Black Monday” and tariff-related volatility earlier this year.
Entertainment Stocks Take the Lead
The momentum is largely fueled by Japan’s seven major entertainment companies. Collectively, these firms – including Nintendo and Sony – have recorded a market capitalization increase of 28% this year, totaling 57.2 trillion yen ($39.7 billion). This performance sharply contrasts with the nine major automakers that traditionally supported the Nikkei index, which have seen a more modest 18% market cap mix.
This marks the first time since 2011, following the listing of Korean game developer Nexon, that entertainment stocks have outperformed other sectors in driving the Japanese market. While manufacturing and financial sectors boast larger overall sizes, their growth momentum has lagged behind, registering gains of only 8% and 2%, respectively.
Nintendo’s Dominance
At the forefront of this surge is Nintendo. The company has reached its highest price since listing, with a market capitalization increase of 6.7 trillion yen since July 17 of last year. During that same period, no other company has surpassed Nintendo’s market capitalization growth. While Mitsubishi Heavy Industries has seen gains of approximately 5.4 trillion yen, driven by anticipated increases in defense spending, it has not yet caught up to Nintendo’s impressive trajectory.
Sony, leveraging its diverse portfolio encompassing game consoles, movies, animation, and music, has also experienced substantial growth, adding 4 trillion yen to its market capitalization in the same timeframe. Konami Group and Bandai Namco Holdings are also demonstrating strong performance, aligning with growth seen in the defense and artificial intelligence sectors.
Protected From Tariff Threats & High-Profit Potential
Japanese stock market experts attribute this success to a key advantage: relative protection from US tariff threats. A senior official noted that the World Trade Organization (WTO) agreement exempts electronically transmitted content – including movie streaming and game downloads – from tariffs. This is particularly significant for Nintendo, where digital content already accounted for 53.5% of game sales last year, a substantial increase from 25% in fiscal year 2018. Anticipation is high for further growth in digital downloads with the launch of the new Switch 2 console.
Beyond tariff protection, entertainment companies possess inherent growth potential. These firms often concentrate on intellectual property, generating revenue through diverse sources like character product sales and streaming license fees. This model yields high profit margins, and a single successful work can generate exponential income compared to traditional manufacturing. Sanrio, the creator of Hello Kitty, exemplifies this, boasting a 49% equity return (ROE) – the highest among major Japanese companies. Sanrio’s price-to-earnings (P/E) ratio of 39 is also higher than Nintendo’s 53 and the 36 of US AI chip manufacturer NVIDIA.
A New Engine for the Japanese Economy
“The entertainment sector has grown into a stock sector that can earn foreign currency like the automotive industry,” one analyst stated. Data from economic industrial sources confirms this, revealing that overseas sales of Japanese content reached 5.8 trillion yen in 2023, exceeding exports of semiconductors and steel.
According to Hiroshi Watanabe, vice president of Low Price Japan and portfolio management, international investors are shifting their focus away from manufacturing, citing concerns about China’s dumping practices and technological advancements. Instead, they are recognizing the sustainable growth potential of the entertainment sector. “It is an area where Japan can exert its strength instead of manufacturing,” Watanabe added.
