The ranking of most valuable companies in Japan has seen a considerable change since the Nikkei index's previous high in 1989, highlighting a structural shift in the country's growth driver from banks to tech firms.
Today, six out of the top 10 firms in the country's market capitalization ranking are tech companies, with Tokyo Electron Ltd., the world's leading chip manufacturing equipment maker, coming third behind Toyota Motor Corp. and Mitsubishi UFJ Financial Group Inc.
Sensor giant Keyence Corp. ranked fourth, followed by entertainment conglomerate Sony Group Corp. Telecom giant Nippon Telegraph and Telephone Corp., SoftBank Group Corp., which has leading chip designer Arm Holdings Plc. as a subsidiary, and chip material maker Shin-Etsu Chemical Co. also made the list.
In 1989, the ranking had six banks, with the Industrial Bank of Japan, a specialist in corporate loans and a predecessor company of Mizuho Financial Group Inc., ranked second after NTT.
They were followed by Sumitomo Bank, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank and Sanwa Bank, helped by strong lending demand during the economic boom driven by skyrocketing property prices.
The burst of the economic bubble in the early 1990s set the banking industry on a declining trend. The abrupt monetary tightening by the Bank of Japan, coupled with a subsequent decrease in lending demand, proved devastating for the country's financial firms.
"Back then, banks played a big role in propelling economic growth by focusing financial resources on manufacturers," said Saisuke Sakai, senior economist at Mizuho Research & Technologies Ltd., noting that the once successful system has crumbled over the decades.
He said the need for direct financing, like raising funds through equity, also grew as opposed to indirect financing, such as loans, undermining the presence of banks.
The BOJ's ultralow interest rate policy to move the country out of deflation has also eroded the sector's strength, with the introduction of negative interest rates in 2016 further accelerating the trend.
Meanwhile, the country's tech firms gradually gained strength by cutting costs, improving efficiency, accelerating overseas expansion and radically changing their business models in the face of long-running deflation, analysts said.
The historic depreciation of the yen also boosted their overseas earnings when repatriated, and the recent artificial intelligence boom has put the sector in the spotlight.
The country's chip firms are drawing particular attention from global investors as they play an increasingly important role in the worldwide supply chain of semiconductors amid trade tensions between the United States and China.
Yutaka Miura, senior technical analyst at Mizuho Securities Co., says the trend is expected to continue.
"Technology has become the center of global infrastructure. We can count on the growth of tech firms to continue for a while," he said.
