Market gains despite volatility
Japanese equities advanced in June despite volatility in AI-related stocks and ongoing geopolitical uncertainty. Falling oil prices following easing tensions in the Middle East helped improve sentiment, although gains were partially pared back toward month-end.
Resilient economy supported by investment
Japan’s economy remains resilient. Business sentiment improved for a fifth consecutive quarter, supported by AI-related demand and robust capital expenditure plans. Government plans for more than JPY 370 trillion of strategic investment further reinforce the medium-term growth outlook.
Inflation and pricing power continue to improve
Corporate inflation expectations and expected selling prices rose further, indicating that Japan’s long-standing deflationary mindset continues to fade. Combined with rising wages, improving pricing power is creating a more supportive environment for sustainable earnings growth.
Constructive outlook underpinned by earnings growth
We remain constructive on Japanese equities. Valuations remain reasonable, with the TOPIX trading at a forward P/E in the mid-16x range, while consensus forecasts point to three consecutive years of double-digit EPS growth. Although investors should monitor AI demand, monetary policy and long-term interest rates, the current environment increasingly resembles a return to a more durable profit growth cycle rather than a temporary cyclical recovery.
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Written by Kazuhiko Hosaka, Senior Product Specialist, Asset Management One Co., Ltd