TOKYO -- Japanese shares are catching up with their U.S. and European counterparts after a poor start this year, now that concerns about European politics and the American economy have eased and overseas investors are worrying about missing buying opportunities here.
Yet the Tokyo market's gains lack the strength seen in the spring of 2015, when the Nikkei Stock Average was also flirting with the 20,000 mark. The key to a lasting rally lies in corporate reforms.
The Nikkei index ended Tuesday at 19,843, down 52 points and just shy of the psychologically important 20,000 level.
Laggard Japanese equities have been among the greatest beneficiaries of a global shift to risk-on mode, said Richard Heyes at Citigroup. Stocks with high foreign ownership gained ground Tuesday in Tokyo, with Sony hitting a nine-year high and discount store operator Don Quijote Holdings climbing 5% at one point.
Overseas investors bought 284.9 billion yen ($2.49 billion) more in Japanese shares than they sold during the fourth week of April, the strongest net buying seen this year, according to Tokyo Stock Exchange data.
Yet there is little sense of enthusiasm, given the difference in momentum from two years ago. Inflows into Japan stock exchange-traded funds listed in the U.S. totaled just $200 million in the week ended May 3 -- a far cry from the $1 billion peak weekly amount recorded in March 2015.
Foreign investors are not getting carried away by Tokyo market's rebound. Jean Medecin at Carmignac said the French asset manager is content with its 4% exposure to Japanese equities since December.
Nor is there any sense that foreign investors are about to increase their buying, said Douglas Butcher at BNP Paribas. Such indifference reflects fading hopes for further change in corporate Japan.
Western corporations are boosting shareholder returns. Apple announced on May 2 an $35 billion increase to its stock buyback program, bringing the total to $210 billion. If U.S. businesses get the big tax cut that the Trump administration has pledged, they may become even keener to repurchase shares, market watchers say.
Meanwhile, in Japan, the value of buyback programs presented by companies on the TSE's first section in April was down 60% from a year earlier.
While corporate Japan has stepped up repurchases in the last several years, no other big changes are on the horizon. "Japanese companies look far less attractive than their European and U.S. peers," said Goldman Sachs' Hiromi Suzuki.
To be fair, corporate Japan has made an effort at improving dialogue with investors and increasing shareholder returns. Many people abroad do recognize that "Japanese companies have made changes, albeit gradually," said Daisuke Nomoto at Columbia Threadneedle Investments.
But for the Nikkei average to rise above the 20,000 mark and beyond, hopes must first take root that companies here will embrace change as much as their Western peers have.