Boj and Japanese stocks: between rates, energy and AI

“The BOJ's recent interest rate hike is not an isolated phenomenon and we expect the normalization process to continue.” This is what Daisuke Nomoto, global head of Japanese equities at Columbia Threadneedle Investments, said.

The war in the Middle East has been going on for over six months. What impact is this having on Japan, given its heavy dependence on imported oil?

“Japan is highly dependent on foreign energy, so an escalation raises concerns about costs and supply chains. However, today the country is much less vulnerable to oil shocks thanks to greater energy efficiency, supplier diversification and significant strategic reserves immediately brought to the market. Rising energy prices may weigh on energy-intensive sectors and benefit resource companies, but it does not change our positive medium-to-long term view on Japanese stocks. In fact, this situation will accelerate the path towards greater diversification of energy sources".

The Bank of Japan raised rates. What are your forecasts and the impact on the price list?

"We expect the Bank of Japan to continue to normalize monetary policy at a gradual pace, guided by data, with a further increase by the beginning of 2027. Inflation remains contained (below 2%) and the reference rate is still lower than the neutral rate, estimated at around 2%. The reduction in bond purchases pushes ten-year yields higher (around 3%), but the Boj is ready to intervene against excessive shocks. This role as guarantor offers stability to the market".

Governance reform and the AI ​​boom have driven the market recovery. Where are we at?

"Governance reform is an irreversible trend. The Tokyo Stock Exchange has placed greater focus on the capital efficiency of companies, triggering a virtuous cycle between share repurchases (buybacks), higher dividends and m&a. Now we hope that attention will shift to capital allocation for future growth. At the same time, the AI boom has favored producers of semiconductors and electronic components, extending to materials, infrastructure and data centers. However, caution is needed: if valuations run too fast compared to the business real, the risk of a correction in AI-related stocks increases.”

Where do you see the most interesting opportunities in the Japanese market?

"In addition to tech, we see great value in companies with 'lazy' balance sheets, rich in liquidity, real estate or cross-shareholdings whose sum exceeds the market capitalization: operational activity is effectively evaluated negatively by the list. The other big theme is infrastructure spending: bridges and tunnels built half a century ago require urgent modernization. It is a structural demand which, combined with the shortage of labor, guarantees a solid and lasting growth trend."