Kaituo Macro: Japanese stock market and Japanese yen may perform well in 2026.

Thomas Mathews, Head of Macro Asia Pacific Markets at Capital Economics, stated in a report that the yen and Japanese stock market are expected to perform well next year, and when calculated in a common currency, the performance of Japanese government bonds should be better than similar bonds in most developed markets. He gave three optimistic reasons for this. Firstly, with the fading of US tariff risks and the success of corporate reform, corporate profits may remain resilient. Secondly, concerns on the fiscal front seem to be exaggerated, and Japan may record a budget surplus this year. Lastly, the low valuations of the MSCI Japan Index and the yen indicate that market sentiment is overly pessimistic and may sharply reverse. However, Mathews points out that strong profits may help drive wage growth and lead to further tightening of policies by the Bank of Japan, putting pressure on Japanese government bonds. He added that a possible rebound of the yen may also create resistance for the domestic stock market.