Japanese stocks are shifting from a value play to a growth story as AI-related firms like Kioxia and SoftBank climb market-cap rankings, drawing global growth investors alongside traditional value buyers.

What happened

Memory-chip maker Kioxia Holdings overtook Toyota to become the largest Japanese company by market value for the first time this month, and SoftBank Group briefly surpassed Toyota as well. Other AI-related firms are emerging among the market's leaders, marking a dramatic shift from a decade ago when automakers and telecoms giants held the top positions.

Why it matters

Global investors have long treated Japan as a low-growth value market due to sluggish economic growth and a declining population. The prominence of high-growth AI infrastructure firms suggests the investment narrative is changing—foreign investors, including overseas pension funds, are now interested in Japanese firms' growth potential, which was relatively rare in the past. However, the market also faces the risk of significant correction if the AI-driven trend reverses.

What to watch

The forward 12-month price-to-earnings ratio of the "Core 30" mega-cap stocks on the Topix has recently been trading at a higher ratio than smaller rivals and is continuing to pull ahead, indicating growing investor confidence in Japan's leading firms' growth prospects. This shift could attract further capital inflows if global investors view Japan as deserving a larger weighting in the AI trade.