J.P. Morgan Japan FTM 22 May 26 Japan equity strategy; Japan quant strategy; TRIAL Holdings update; Orix update; Railway sector update; Paper & packaging update and More

Research evidence excerpt

J.P. Morgan Japan FTM 22 May 26 Japan equity strategy; Japan quant strategy; TRIAL Holdings update; Orix update; Railway sector update; Paper & packaging update and More

Asia Pacific Equity Research

Japan First to Market 22 May 2026

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Japan Equity Strategy (Rie Nishihara)

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 Japan. The rise in Japanese yields appeared

to spill over to global markets late last week. Persistently high oil prices and reports of the government's supplementary budget

appear to have been the triggers. However, we think the supplementary budget, which drew a strong market reaction, merely

pushes back the achievement of a primary-balance surplus from FY2026 to FY2027-28, and is unlikely to trigger a triple sell-off

in Japan. We argued in January that a 10-year JGB yield of 3.0–3.5% is a warning level for the regional financial system (

report ) . We think this level remains largely unchanged. Given the government's targets for inflation and potential growth of

1.1% for FY2030, a 3% yield is not a surprising level, but we think it should be reached gradually and thus view the recent move

as rapid. However, a phase of a 10-year JGB yield of 3% will likely come into view in the medium term. We think the 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 resilience of the

regional financial system is higher with accelerated sector reorganization. (3) Foreign investors have leeway to buy, while