Japan’s equity market appeared to finish December on a slightly firmer footing, supported at different points by resilient global risk appetite, a late rebound in US technology shares, and a largely steady yen into year‑end. Macro signals were mixed but did not point to pronounced weakness: private demand seems to retain some resilience, helped by wage settlements, labour‑saving investment and targeted government measures. Monetary policy has started to normalise, yet financial conditions may remain broadly accommodative as inflation shows signs of easing.
Policy developments could provide a tailwind into 2026. The tax reform is set to incentivise capital investment and R&D in strategic technologies, which, in our view, may encourage a more active use of corporate cash reserves. The initial budget under the current administration appears to prioritise growth while acknowledging higher debt‑service costs, with issuance guidance suggesting some caution around very long maturities.
Looking ahead, we are inclined to think that Japan’s medium‑term equity trend could remain constructive, underpinned by a gradual entrenchment of inflation after a prolonged deflationary phase and ongoing improvements in corporate governance and management. IBES TOPIX EPS consensus currently indicates multi‑year earnings expansion—+6.3% (FY2025), +11.1% (FY2026), +9.6% (FY2027)—which, if realised, would support a more positive stance. Even so, some doubt valuations are rich in the past range, and we would be mindful of near‑term constraints; that said, a re‑rating could still be possible if confidence builds and the structural shift gains further traction.
Geopolitics remains a swing factor. Rising China–Japan tensions—alongside indications of tighter export controls on dual‑use items—introduce uncertainty and may cap upside in the near term. At this stage, it seems premature to quantify industry‑specific impacts. There is a view that the impact could be smaller than in the past, aided by recycling and rare‑earth‑free technologies, with corporate and public stockpiles offering an additional buffer. We would continue to monitor developments closely.
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Written by Kazuhiko Hosaka, Senior Product Specialist, Asset Management One Co., Ltd