Japanese equities rose in October, supported by strength in AI-related stocks and improved sentiment following Prime Minister Sanae Takaichi’s appointment. While early profit-taking briefly weighed on performance, futures-led buying and a US rate cut helped lift investor confidence. Solid corporate earnings also contributed, with major indices ending the month near record highs.
The domestic economy remains resilient, driven by rising wages and labour-saving investments, despite external headwinds. Although exports and housing investment have softened, overall growth momentum continues. Inflationary pressures are steady, reinforcing expectations of potential monetary tightening after the Bank of Japan’s upcoming meeting.
The Takaichi administration has introduced fiscal measures including cost-of-living support, tax cuts, and wage increases for medical workers. While broader reforms—such as changes to social security and healthcare—may face political hurdles, Japan’s shift away from deflation and continued corporate governance improvements are expected to support equity markets.
Against this backdrop, we maintain a constructive medium-term view on Japanese equities. Structural changes in the macroeconomic environment and corporate behaviour are likely to provide a favourable foundation for sustained market performance.
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Written by Kazuhiko Hosaka, Senior Product Specialist, Asset Management One Co., Ltd