Episode summary
Why Japanese Stocks Could Keep Rallying
Exchanges (Goldman Sachs)
· · Guests: Bruce Kirk
Summary
Japanese equities have extended a strong 2025 run into 2026, with Bruce Kirk arguing that Prime Minister Sanae Takaichi’s snap-election victory is a major positive for both political stability and market sentiment. He said the result could improve investor perceptions by increasing the odds of policy continuity, stronger foreign inflows, and a higher valuation multiple for the TOPIX.
Kirk also argued that the election outcome may reduce the odds of aggressive fiscal moves, even though investors had worried about pledges such as a temporary cut to the consumption tax on food. He said the market is now more relaxed about the fiscal outlook than before the vote, while near-term attention shifts to defense, economic security, the US-Japan relationship, and the March 19 summit in Washington between Takaichi and President Trump.
On the market itself, Kirk said Japan is still in the upward phase of a cycle that began in autumn 2022, but the next stage will require delivery on corporate governance and return-on-equity improvement. He thinks foreign investors still have room to add exposure, though correction risk remains a concern if policy, political, or external shocks unsettle bonds, FX, or global growth.
Key takeaways
- Bruce Kirk said the election was "extremely consequential" because it should support political stability and the broader Japanese equities market.
- Kirk expects the victory to lower the odds of more drastic fiscal populism, making the bond and FX markets more comfortable with Japan’s policy outlook.
- He said corporate governance reform has already lifted total shareholder returns from 6-7 trillion yen to 40-45 trillion yen a year, but investors still want urgency.
- Kirk thinks the Japanese market is still in the upward phase of a cycle that began in autumn 2022, even after TOPIX more than doubled.
- He said foreign positioning is improving but still not stretched, with about 1.8 trillion yen of net foreign buying in the week before the election.
- Kirk warned that an unexpected resignation by Takaichi or a policy shock could end the rally or trigger a correction.
Notable quotes
“Our view is that this election result is extremely consequential, both from a political stability point of view within Japan and as a positive for the overall Japanese equities market itself”
“I think you will see -- in the near term, I think you're going to see more clarity around areas like defense, economic security, and the relationship between Japan and the US”
“I think the concern that both investors in the rates market and the FX market had was, you know, I think it's easy to bring down taxes, and then it becomes a lot more difficult to raise them again”
“we now have TOPIX and Nikkei frequently testing all-time highs over the last couple of months. Total shareholder returns have definitely improved significantly”
“we believe that we're still very much in the upward phase of the current market cycle, and we think that market cycle started in the autumn of 2022”
How the episode opens
After a very strong 2025, Japanese stocks have built on those gains in 2026. The most recent catalyst has been the outcome of the snap election. Prime Minister Sanae Takaichi's resounding victory could pave the way for pro-growth policies that might shift global investor perceptions about the Japanese market.
I'm Allison Nathan and this is Goldman Sachs Exchanges. Today, I'm joined by Bruce Kirk, our chief Japan equity strategist in Goldman Sachs Research. He joins us remotely from Tokyo.
Bruce, welcome back to Exchanges. Hi, Allison. Thanks for having me on the show.
So let's just start with the recent news, Bruce. The election, of course, is the news of the day. You actually raised your target on Japanese equities on the back of Takaichi's victory.
So how consequential really are these results? Our view is that this election result is extremely consequential, both from a political stability point of view within Japan and as a positive for the overall Japanese equities market itself. Now, both of these factors we think are interlinked.
And if you look at the performance following previous election results which have been politically significant, you do seem to see that. So, you know, what we observe when we look at the three previous elections historically when an LDP-led coalition has achieved a two-thirds supermajority in the Lower House, and that would be 2005, 2012, and 2014, what you tend to see is there's an initial positive market reaction. And the market tends to go up about 20% on average in the first three months after the election itself.
But then over that next nine-month period, what we see is there's an expansion of the TOPIX multiple. And that peaks about three points higher from where we tend to be at the start of the election result.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- japanese stocks
- snap election
- equity market
- foreign investors
- global markets
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “Why Japanese Stocks Could Keep Rallying” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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