Please see the below article from EPIC Investment Partners detailing their discussions on stability in Japan amidst oil volatility. Received this morning 19/03/2026.
Japan’s market rally has gained significant momentum in 2026, driven by Prime Minister Sanae Takaichi’s pro-growth agenda, an overhaul of corporate governance, and a surge in foreign investment. This growth comes at a critical time as Japan navigates geopolitical energy challenges, particularly with the ongoing tensions surrounding Iran’s energy sector. Three Japanese firms now lead the MSCI World Index year-to-date.
Following the Liberal Democratic Party’s decisive election win, the Topix and Nikkei 225 reached new all-time highs, with the Topix climbing approximately 13% this year, significantly outperforming the S&P 500’s modest gains. In the wake of Takaichi’s victory, foreign investors rapidly increased their stakes, buying a net ¥1.78 trillion ($11.5 billion) in Japanese shares and index futures during the week ending February 13.
This marks the largest inflow since November 2014, indicating a significant shift toward Tokyo as global investors look for more reliable returns amidst uncertainties, including those related to energy supplies from Iran.
Sector winners reflect this new policy mix: technology, defence, energy, and construction are poised to benefit from anticipated government spending. Japanese firms like JX Advanced Metals and miners such as Sumitomo Metal Mining have seen gains due to rising metal prices, driven in part by AI demand and the need for materials critical for energy infrastructure.
As Japan seeks to diversify its energy sources and reduce dependency on Middle Eastern oil, the focus on domestic energy production becomes increasingly relevant. However, risks remain. Valuations are elevated in parts of the market, with the price-to-book ratio at a post-2008 high of 1.7x. Japan-China relations remain delicate, and US political dynamics, including limited support from President Trump for Takaichi, add to geopolitical uncertainty—especially as tensions with Iran could disrupt global oil supply chains. Bottom line: Japan has re-emerged as a compelling, policy-backed investment destination—stimulus-ready, structurally improving, and delivering standout equity performance across high-impact sectors—while necessitating careful monitoring of valuations and geopolitical risks.
Here are three concise reasons why Japan in 2026:
- Political stability under Prime Minister Takaichi, bolstered by a ¥17.7 trillion fiscal package (part of a ¥21.3 trillion stimulus), has fuelled a domestic reflation narrative. Financials and real estate have led the market, offering a credible alternative for investors if sentiment shifts away from the US.
- Corporate governance has progressed from mere window dressing to meaningful reform: companies are divesting non-core assets, unwinding cross-shareholdings, and implementing capital return plans. Return on equity (ROE) has improved (from approximately 8.4% to about 9%), with around 80% of prime market firms submitting improvement plans. A significant revision of the Governance Code is expected in mid-2026, indicating long-term, stock-specific uplifts.
- The Bank of Japan (BoJ) has commenced tightening, raising rates to 0.75% in December 2025 while signalling cautious, data-driven moves.
While an oil crunch poses challenges, it can also create opportunities for growth in various sectors of the Japanese economy. Companies that adapt to the changing energy landscape and invest in innovative solutions are likely to see positive stock performance, contributing to the overall strength of the market.
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Alex Clare
19/03/2026