2025 was an eventful year for global equities. In the first half, markets were dominated by US tariffs introduced under President Trump. Concerns about trade and tariffs had a notable impact on equity valuations and growth forecasts. In the second half of the year, the AI boom and rising levels of technology investment helped push markets higher. However, the rally has been very narrow, with most of the gains coming from a small group of large AI and technology-related companies.

Japan remains on a steady path of reflation, aiming to support growth through government stimulus measures, including the recently announced $135bn package.

The US tariff announcement initially weighed on corporate Japan’s earnings visibility and sentiment, both of which have improved in recent months and should continue to do so. Japan remains on a steady path of reflation, aiming to support growth through government stimulus measures, including the recently announced $135bn package. Inflation is expected to ease towards 2% as temporary factors fade. Following the appointment of Prime Minister Sanae Takaichi, the Bank of Japan is likely to face political pressure to avoid raising interest rates too far and risking a slowdown in the recovery.

Japan’s stock market continues to offer reasons for optimism, supported by ongoing reforms aimed at improving capital efficiency and delivering stronger shareholder returns. In 2025, Japanese companies were expected to return a record amount of capital to shareholders while increasing investment in growth. Even so, cash reserves remain much higher than those of Western peers.

The corporate governance code is set to be updated in 2026, with early signals from the Tokyo Stock Exchange and the Financial Services Agency suggesting that the next phase of reform will focus on encouraging more efficient use of cash. We feel our portfolio is well positioned to benefit from these developments.