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On Wednesday, Japan’s parliament is scheduled to reconvene with expectations that Sanae Takaichi will become Japan’s next prime minister, following her appointment as the leader of the ruling Liberal Democratic Party (LDP). As a conservative special adviser to the assassinated former PM, Shinzo Abe, Takaichi is also expected to focus on Japan’s stalled growth. “Abenomics” was marked by both monetary easing and government stimulus. Takaichi should follow through by forming stimulus packages to drive demand, which should then be the main driver of Japan’s inflation. At present, Japan’s inflation is driven by rising raw material imports, affected by yen’s eight-month low against the dollar.

Although Japan’s gross debt-to-GDP ratio is exceedingly high, at 236.70% in 2024, the nation has a highly resilient financial structure anchored by the Bank of Japan and its captive domestic bond market. This creates an insulated debt ecosystem, which allows for Takaichi’s expansionary monetary policies.

For investors, this provides an opportunity to re-enter a market that has long been undervalued, despite the long-term headwinds due to Japan’s demographic decline.

Mitsubishi Heavy Industries Ltd. ADR (OTC: MHVIY)

A unique exemplar of Japan’s centralized economy, Mitsubishi Heavy Industries (MHI) offers a huge range of products, from industrial machinery, automotive parts and premium air conditioning systems to tanks, aerospace components and warships. As such, the company’s price-to-earnings (P/E) ratio is relatively high at 41.13, when compared to industry peers typically below 30.

This makes Mitsubishi a solid exposure to all of Japan’s economic sectors, as every initiative goes through this multinational engineering giant. For the quarter ending June, delivered in early August, the company reported 7.4% revenue increase from the year-ago quarter, with profits climbing 5.9%.

In this period, the company’s free cash flow (FCF) went from negative ¥126.2 billion to positive ¥64.3 billion. Of particular note was the large order intake growth of ¥66.7 billion in the Energy Systems division. This is unsurprising, however, given MHI’s heavy involvement in the development of nuclear reactors, which are needed for the global data center boom to facilitate AI demand.

Among all divisions, MHI recorded the highest YoY revenue growth in the Aircraft, Defense & Space (ADS) division, having added 48.8 billion yen YoY. Despite the order intake contraction by ¥125.2 billion, ADS capitalized on the substantial accrued backlog, including Boeing 787 wing sets.

Owing to extensive holdings and sales footprint in the US, the company has seen minimal tariff impact, leading to the reiteration of revenue forecast for FY2025 at ¥5,400 billion.

According to Wall Street Journal’s forecasting data, the average MHVIY price target is $27.46, slightly below the current price of $27.55 per share. Most analysts are bullish, with a ceiling price target of $32.93 per share.

Toyota Motor Corp. ADR (NYSE: TM)

In addition to Sony, Toyota remains one of Japan’s enduring brands. With a P/E ratio of 8.77, Toyota’s valuation is low, especially against Ford Motor’s P/E of 14.74 and Tesla’s enormous P/E of 245.45.

Renowned for its reliability, Toyota reported a 15.9% increase in Q3 North American sales, outpacing record Tesla deliveries at 629,137 vehicles. Toyota’s electrified vehicles sold 10.5% more, representing 44.9% of total sales volume.

In Europe, the company’s hybrid approach remains highly popular, having increased Toyota’s market share to 7.3%. Plug-in hybrid sales increased 272% year-over-year as of July to 42,200, with the Toyota C-HR model boosting demand.

Globally, the company shipped 6.5 million units in the first seven months of 2025, marking a 5.4% YoY sales increase. Beyond cars, Toyota Research Institute (TRI) is heavily involved with humanoid robots, including a partnership with robotics leader Boston Dynamics.

Additionally, in early 2024, together with its main supplier Denso, Toyota invested in Japan Advanced Semiconductor Manufacturing (JASM), majority owned by leading semiconductor manufacturer TSMC. By 2027, the combined $20 billion investment should lead to JASM’s second foundry in Japan.

This makes TM a strong candidate for multi-sector exposure. Accordingly, most Wall Street analysts are bullish, setting the average TM price target at $219.60 against the current price of $193.81 per share. The bottom price target is not far off at $179.64, while the ceiling price target for Toyota stock is $250.93 per share.

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