Japan Quantitative Strategy: 2026 Quant Equity Mid-Year Outlook　- Quant Matters Japan (May 2026)

Research evidence excerpt

Japan Quantitative Strategy: 2026 Quant Equity Mid-Year Outlook - Quant Matters Japan (May 2026)

IdeaMDown EPS Revisions Breadth, reflecting the need for cash-flow resilience, capital discipline

and earnings selectivity in an energy-sensitive market.

Japan quant factors – A Dual Approach Integrating

Macroeconomic and Micro-Level Insight

In Exhibit 2 , we show the key forecasts from our economists and strategists in Japan for

2026 and 2027. Our equity strategists expect the rally in Japanese equities to continue,

with TOPIX projected to reach 4,300 by June 2027. The market remains supported by

Japan’s ongoing transition toward a more reflationary environment, structural labor

shortages, wage growth, productivity-enhancing capex, corporate governance reform and

strategic investments tied to AI, semiconductors, power infrastructure, defense, robotics

and telecoms.

Meanwhile, our macro strategists expect long-term interest rates, which have been

trending higher on the back of Bank of Japan rate hikes, to see a modest short-term

decline but remain broadly range-bound over the medium term. This creates a supportive

backdrop for value factors, particularly if rates do not decline materially. At the same time,

higher oil prices can pressure corporate profitability, increasing the importance of

valuation metrics tied directly to earnings and of bottom-up revisions as a stock-selection

signal.

Exhibit 2: Key economist and strategist forecasts – Japan

Macro Current Estimates

TOPIX 3919.48 4300 (2Q 2027)

JGB 10Y 2.60% 2.25% (2Q 2027)

2025 2026E 2027E

GDP (Annual) 1.2 0.4 1.0

Inflation (Annual) 3.2 2.2 1.4

Policy Rate 0.75 1.00 1.25

Source: Morgan Stanley Research.

In this environment, we recommend the following three factors for Japanese equities: Up

vs.