Japanese Equities Poised for Robust Growth

Japan's equities have historically underperformed compared to global peers due to subdued domestic demand, deflation, yen volatility, and poor corporate capital efficiency. However, several long-standing headwinds are beginning to reverse.

Stronger wage growth supports rising domestic demand, while corporate governance reforms and strategic exposure to AI-related investment suggest that fundamentals are aligning. This provides a stronger foundation for more durable earnings growth compared to other volatile Asian indexes.

Japan's diversified exposure to AI differs from the concentrated exposure in US markets, which has largely been driven by hyperscalers and semiconductor designers. Taiwanese and Korean markets benefit from their positions at the forefront of semiconductor foundry and memory manufacturing.