Three Reasons Why Investors are Returning to Japan

When Japan’s Prime Minister Sanae Takaichi declared "Japan is back" during her leadership campaign last year, it sounded very much like standard political bravado. Yet the Nikkei 225 spent 2025 making good on that promise (with some whipsawing along the way), marking its third consecutive year of positive returns and reaching an all-time high in December.

Heading into 2026 we are moving beyond the simple "weak yen" trade and into a phase where Japanese equities are increasingly shielded from the unpredictable impact of US policy. With what we believe to be a stable, pro-growth leadership and a corporate governance overhaul that has become a survival imperative for companies, for us, Japan is no longer just a tactical hedge, but a strong domestic play with the potential to continue attracting flows back to the region.

Other overseas investors have also taken notice: net purchases of Japanese cash equities reached roughly ¥5.4 trillion (US$35 billion) in 2025, according to data from the Tokyo Stock Exchange. While that’s a staggering 35 times the volume of the previous year, longer-term inflows remain quite low, particularly compared to the early Abenomics period of the early 2000s.

Figure 1. Overseas investors are warming to Japan again - cumulative net foreign buying since 2012

Source: Bloomberg, as at 19 December 2025, Goldman Sachs Investors.

Here are three key reasons why we remain optimistic about Japan this year.

1. Sanaeconomics and domestic reflation

The political backdrop has stabilised under a decidedly pro-growth leader. Since November 2025, financials and real estate have led the market as confidence in the domestic reflation story grew. Takaichi’s ¥17.7 trillion economic package (part of a broader ¥21.3 trillion stimulus) provides a crucial backdrop that has already prompted the Bank of Japan (BoJ) to consider raising its economic growth projections during its board meeting next week. This domestic story offers a credible alternative for investors if sentiment shifts away from the US and outflows follow. 

2. Governance as a survival imperative

Corporate governance remains the key differentiator for Japanese equities. Reforms are moving from ‘naming and shaming’ to deep structural change, with companies divesting non-core assets and unwinding cross-shareholdings to boost capital efficiency. A further major revision of the Corporate Governance Code is slated for mid-2026, targeting the ‘idle cash’ problem. Cross-shareholdings are being dismantled and return on equity (ROE) is finally trending upward, rising from roughly 8.4% to 9% in the last few years. We now have 80% of prime market companies submitting capital improvement plans. This transformation is a long-term, stock-specific narrative with years left to run.

3. The hope for a virtuous normalisation

The BoJ is performing a delicate dance. Governor Kazuo Ueda oversaw a December 2025 rate hike to 0.75%, the highest level since 1995. While he remains cautious about defining a "neutral" rate, he has expressed confidence that companies will continue to raise wages steadily, noting that uncertainties around US tariffs have receded. 

The path forward is one of hopeful normalisation. The Shunto spring wage negotiations, which kick off in March 2026 and reach their "yamaba" peak in mid-March, are expected to maintain strong momentum, with the Japanese Trade Union Confederation (Rengo) seeking hikes of 5% or more. Continued BoJ moves should counter the perception of being behind the curve, bolstering the yen and helping to bring down imported inflation. This should support the Japanese consumer and bolster broader domestic confidence. 

The opportunities

We think these three pillars have created a stock-specific opportunity set, balancing momentum and value:

• Financials (banks): These benefit directly from rising rates and the potential for a stronger domestic economy to fuel lending. Many trade around one times price-to-book with decent yields, offering both momentum and value.
• Asset managers: They sit at the heart of the corporate governance revolution, benefiting directly from increased activity in capital markets. As companies restructure, divest non-core assets, and return more cash to shareholders, asset managers act like an infrastructure play on Japan Inc transformation.
• Contrarian opportunities: We see the attractiveness in telecoms and retail: the sectors are currently unloved, undervalued against historical averages, and positioned to benefit from a reform-driven re-rating as management quality improves.

The view ahead

There are risks that naturally must be monitored. Market valuations are somewhat elevated, especially in certain segments of the market, with the price-to-book ratio at a post-2008 high of 1.7 times. Furthermore, Japan-China relations remain delicate. US President Donald Trump has not supported Sanae Takaichi in the way she might have expected, and China remains an essential trade partner.

That said, higher valuations haven't held back the US market in recent years. To us Japan now offers a stable, pro-growth government, rising wages, and a corporate sector undergoing a fundamental cultural shift. The governance revolution is not yet fully priced in for many stocks and for those looking for a structural story in 2026, Japan’s individual narrative remains a persuasive act.

Author: Emily Badger, a Portfolio Manager on Man Group's Japan Core Alpha Team.
 

Venezuelan bonds: Expect a bumpy transition

Not surprisingly, we had a busy start to the year on the emerging markets debt desk with colleagues and clients trying to make sense of recent events in Venezuela. The situation remains very fluid but here are some early thoughts on what the US intervention may mean for Venezuelan bonds and oil.

As of the close of 9 January, bonds have rallied 29% since former President Nicolás Maduro's capture, with senior unsecured bonds in the Venezuela/Petróleos de Venezuela, S.A. (PDVSA) complex trading at a weighted average price of US$37.58. The market appears to be fully pricing in a potential restructuring within the next two years, but we expect a bumpy transition. We are closely monitoring whether the existing regime, particularly Interior Minister Diosdado Cabello, and Defence Minister Vladimir Padrino López, who are needed to maintain order, shows willingness to comply with US demands alongside acting President Delcy Rodríguez, as this will dictate price action going forward.

Executive orders

Last Friday's US executive order, which aims to shield cashflows from the newly-created and US-directed Venezuela oil fund from creditors, shed further light on the complex nature of any future restructuring, one which is set by geopolitics and includes multiple players at the table. 

In addition to negotiations around narcotics flows, US President Donald Trump has required that Venezuela cut ties with China, Iran, Russia, and Cuba, and agree to partner exclusively with the US on oil production. Key signposts include how these discussions progress and whether stability is maintained to allow free and fair elections within the next 12 to 18 months, which is critical for unlocking additional investment and proceeding with bond restructuring.

And what about the implications for the oil price? Venezuela holds the largest crude oil reserves in the world but is by far the smallest producer among the top 10 global reserve holders. Years of underinvestment and mismanagement have led to a decline in production to less than 1 million barrels per day (bpd), barely 1% of global supply, down from the peak of over 3 million bpd in the 1990s. Many oil experts predict that under an improved legal and regulatory framework that opens the door to private investments, low-hanging fruit could initially bring production back to 1.3 to 1.4 million bpd within two years. However, returning to the 2 million+ bpd threshold would be much more capital intensive, making meaningful supply risks to the oil sector a more medium-term event.

Author: Lisa Chua, a Portfolio Manager at Group.

All data sourced from Bloomberg unless otherwise stated. Past performance is not indicative of future results.

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