Japan Equity Strategy Japanese equities heading into a phase of 3% yields; where to go, AI and financials?

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Japan Equity Strategy Japanese equities heading into a phase of 3% yields; where to go, AI and financials?

J P M O R G A N Global Markets Strategy

21 May 2026

Japan Equity Strategy

Japanese equities heading into a phase of 3% yields;

where to go, AI and financials?

A rapid rise in long-term yields last week led AI semiconductor stocks to decline in Equity Strategy

ACJapan. The rise in Japanese yields appeared to spill over to global markets late last Rie Nishihara

week. Persistently high oil prices and reports of the government's supplementary (81-3) 6736-8629

budget appear to have been the triggers. However, we think the supplementary budget, rie.nishihara@jpmorgan.com

which drew a strong market reaction, merely pushes back the achievement of a JPMorgan Securities Japan Co., Ltd.

primary-balance surplus from FY2026 to FY2027-28, and is unlikely to trigger a Yong Guo, CFA

triple sell-off in Japan. We argued in January that a 10-year JGB yield of 3.0–3.5% is (81-3) 6736-8623

yong.guo@jpmorgan.com

a warning level for the regional financial system (report).We think this level remains JPMorgan Securities Japan Co., Ltd.

largely unchanged. Given the government's targets for inflation and potential growth

Mansi Das

of 1.1% for FY2030, a 3% yield is not a surprising level, but we think it should be (91) 2261 573343

reached gradually and thus view the recent move as rapid. However, a phase of a 10- mansi.das@jpmchase.com

year JGB yield of 3% will likely come into view in the medium term. We think the J.P. Morgan India Private Limited

equity market can maintain its uptrend without collapsing even under 3%

yields, because (1) the risk of rapid yen appreciation has receded, making it unlikely

that the impact of rising rates on earnings and stocks will be amplified, and (2) the