TPX Research Hub

The Japanese equity market continues to demonstrate resilience and attractiveness, underpinned by solid fundamentals and a transition to a 'new normal' rate environment. Analysts highlight a significant shift in the fixed-income landscape, with the 10-year Japanese Government Bond (JGB) yield reaching its highest levels since 1997 and forecast to settle around 2.7% by late 2026. This transition is supported by expectations that the Bank of Japan will raise its terminal rate to 1.5% by mid-2027, creating a favorable earnings backdrop for the financial sector. Foreign investor sentiment remains robust, with North American buyers leading a ¥2tn inflow in recent months, even as the market adjusts to a negative equity-bond correlation. While corporate earnings for the prior fiscal year outperformed consensus—led by financials and non-manufacturers—guidance for FY3/27 remains conservative at approximately 3% profit growth. Beyond financials, research points toward continued strength in AI-related sectors, electric appliances, and precision instruments, alongside potential rotation into laggards such as trading companies and defense. Finally, improving corporate governance and a targeted 10% return on equity (ROE) are cited as structural drivers that justify higher price-to-earnings valuations relative to historical averages.