Upside Potential for Japanese Equities

Japanese equities have been on an upward trend since April this year, with the TOPIX surging by 14.5% from the end of March to 14 June. Meanwhile, the MSCI AC World Index (excluding Japan), a global equity index comprising developed and emerging economies, only rose by 4.7% (Figure 1). We believe the key factors behind the outperformance of the Japanese market include; (1) the TSE requesting listed companies with underperforming stocks to demonstrate better use of capital (for more on this, see our Opinion Report titled “Response to the Tokyo Stock Exchange’s Request to Listed Companies with below par Price-to-book Ratio", 28 April 2023*1), (2) a prominent US investor announcing their investment in Japanese stocks, (3) the growing expectation that the Japanese economy might break out of the long-term deflationary environment.