Japan Stocks: High Can Go Higher

  • We see Japan stocks climbing higher on robust earnings, corporate reforms and a Bank of Japan likely worried about returning to a chronic deflationary mindset.
  • U.S. stocks jumped last week on further tech earnings beats. U.S. Treasury yields ticked down due to markets pricing out some rate cuts.
  • We’re watching U.S. PCE data out this week for further signs inflation is falling toward 2% this year as we expect. Yet we expect it to rebound beyond 2024.

We believe Japan’s equity rally has room to run – unlike some past false starts. We think both the macro outlook and company-level developments will drive the next leg. The corporate earnings growth we expected since 2023 is playing out. Yet we don’t see markets fully pricing in positive signs like corporate reforms. We think the Bank of Japan will cautiously wind down its ultra-loose monetary policy to avoid disrupting an exit from decades of no inflation. We stay overweight Japan stocks.

Beyond the yen