Man GLG, JPMorgan Asset Management and Morgan Stanley are among those who see more upside after Japans Topix Index reached its highest level since 1990 this week. Equities are shooting above levels dubbed as the iron coffin lid as the return of inflation, improving shareholder returns and an endorsement by Warren Buffett all combine to burnish the appeal of the worlds third-largest stock market.

Japan is my favorite global stock market at this point. Its getting everything its wished for, said Jack Ablin, chief investment officer at Cresset Capital Management, a Chicago-based investment advisory firm that manages about $60 billion. We are about 50% overweight Japanese stocks in our developed-market strategy.

Japan stands out amid anxiety in the US over the debt-ceiling issue and a possible recession, and as Chinas uneven economic recovery and its lackluster market increasingly frustrate global investors. Overseas funds have further boosted their holdings of Japan stocks this month after snapping up 2.2 trillion yen ($15.9 billion) in April, the most since October 2017.

The Topix Index closed at 2,161.69 on Friday, taking its gain in May to 3.8% in dollar terms. The Nikkei 225 has rallied more than 5% and finished Friday at its highest in nearly 33 years. Meanwhile, Chinas CSI 300 Index has fallen about 3.5%, continuing to lose ground after the initial reopening rally evaporated. The S&P 500 has added less than 1%.

Jeffrey Atherton, head of Japanese equities at Man GLG, sees further 10-15% potential for the market on resilient earnings, modest valuations and corporate reforms. Man GLG is one of the investment divisions of Man Group Plc, the worlds largest publicly traded hedge fund.

We expect Japanese interest rates to remain very low by global standards, so monetary policy should be supportive to risk assets, unlike other regions, he added.

Japans market value has surged about $518 billion since a Jan. 5 low, data compiled by Bloomberg show. Japan equity funds lured $800 million in the week ended May 10, the most in seven weeks, while those in the US and Europe saw outflows, according to EPFR data.

All of this comes as years of loose monetary policy finally translates into higher inflation. Consumer prices excluding fresh food rose 3.4% from a year ago in April, showing that Japan has put deflation firmly behind without stoking excessive price gains that warrant rate hikes like in the US. China, on the other hand, is facing deflationary risks. 

Having long sat on piles of cash, Japanese companies are also coming to terms with the need to improve shareholder returns and untangle cross-shareholdings in response to growing demand for better corporate governance.    

Share buybacks hit a record in fiscal 2022, with investors expecting more following the Tokyo Stock Exchanges call in January to boost valuations for firms trading at a book value ratio of below one.

We are beginning to see the interests of all shareholders being recognised, said Alex Stanić, head of global equities at Artemis Investment Management. Too many Japanese companies have been trading for too long at a discount to their book value. That makes for great bargains for investors.

Warren Buffett helped fuel the recent optimism toward Japan by renewing his endorsement for the market during a trip earlier this year. Societe Generale SA and Pictet Wealth Management are among those with an overweight call on Japan and an underweight on US equities.

Despite the dominant optimism, the market could still suffer pullbacks in the near term as technical indicators show indexes are in overbought territory. Real wages are falling even as inflation picks up, and a slowdown in the global economy could weigh on local exporters reliant on the US and Chinese markets.

Analysts expect Japans economy to grow about 1% this year, above the 10-year average. The US and China, at 1.1% and 5.7% respectively, are forecast to expand below their historical trends.

The Japanese economys exit from deflation and transition to a moderately inflationary economy is one of the unique structural changes in Japan, JPMorgan equity strategists including Rie Nishihara wrote in a note dated Friday, adding that the rally is likely to be sustainable, given that these factors are not temporary.

For many investors, its Japans valuation that is too cheap to ignore. Almost half of TSE Prime Market Index members are trading below book, compared with just 5% of the S&P 500 Index, data compiled by Bloomberg show. Even after the rally, the Topixs price-to-book ratio is about 1.3 times, in line with its 10-year average. 

Despite strong performance year to date, majority of the sectors are still at large discount to the S&P, which makes valuations appealing, said Evgenia Molotova, senior investment manager at Pictet Asset Management in London. We believe Japan will continue to demonstrate strong performance in the medium term.

With assistance from Hideyuki Sano and Sagarika Jaisinghani.

The ruling is a major victory for the Biden administration, which has used aggressive enforcement of antitrust laws to fight against mergers and other arrangements between large corporations.

The Justice Department argued during a trial last fall that the deal would eventually cost consumers hundreds of millions of dollars a year.

U.S. District Judge Leo Sorokin wrote in his decision that American and JetBlue violated antitrust law as they carved up Northeast markets between them, replacing full-throated competition with broad cooperation.

The judge said the airlines offered only minimal evidence that the partnership, called the Northeast Alliance, helped consumers.

The airlines said they were considering whether to appeal.

We believe the decision is wrong and are considering next steps, said American spokesman Matt Miller. The courts legal analysis is plainly incorrect and unprecedented for a joint venture like the Northeast Alliance. There was no evidence in the record of any consumer harm from the partnership.

JetBlue spokeswoman Emily Martin said her airline was disappointed, adding, We made it clear at trial that the Northeast Alliance has been a huge win for customers.

The Justice Department, meanwhile, hailed the ruling.

Todays decision is a win for Americans who rely on competition between airlines to travel affordably, Attorney General Merrick Garland said in a statement.

The partnership had the blessing of the Trump administration when it took effect in early 2021. It let the airlines sell seats on each others flights and share revenue from them. It covered many of their flights to and from Bostons Logan Airport and three airports in the New York City area: John F. Kennedy, LaGuardia and Newark Liberty in New Jersey.

But soon after President Joe Biden took office, the Justice Department took another look. It found an economist who predicted that consumers would spend more than $700 million a year extra because of reduced competition.

American is the largest U.S. airline and JetBlue is the sixth-biggest overall. But in Boston, they hold down two of the top three spots, alongside Delta Air Lines, and two of the top four positions in New York.

The Justice Department sued to kill the deal in 2021, and was joined by six states and the District of Columbia.

It is a very important case to us because of those families that need to travel and want affordable tickets and good service, Justice Department lawyer Bill Jones said during closing arguments.

The trial featured testimony by current and former airline CEOs and economists who gave wildly different opinions on how the deal would affect competition and ticket prices.

The airlines and their expert witnesses argued that the government couldnt show that the alliance, which had been in place for about 18 months at the time, had led to higher fares. They said it helped them start new routes from New York and Boston. And most importantly, they said, the deal benefitted consumers by creating more competition against Delta and United Airlines.

The judge was not persuaded.

Though the defendants claim their bigger-is-better collaboration will benefit the flying public, they produced minimal objectively credible proof to support that claim, he wrote. Whatever the benefits to American and JetBlue of becoming more powerful in the northeast generally or in their shared rivalry with Delta such benefits arise from a naked agreement not to compete with one another.

Hanging over the trial was JetBlues proposed $3.8 billion purchase of Spirit Airlines, the nations largest discount carrier. In March, while Sorokin was mulling his decision, the Justice Department sued to block that deal too, arguing that it would reduce competition and be especially harmful to consumers who depend on Spirit to save money.

JetBlue has countered that acquiring Spirit will make it a bigger, stronger low-cost competitor to Delta, United, Southwest and American which together control about 80% of the domestic U.S. air-travel market.

The governments lawsuit against the JetBlue-Spirit deal is pending before a different judge in the same Boston courthouse.