Japan Equity Strategy: Summer storm continues: Selling may begin to ease, but markets remain unstable

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Japan Equity Strategy: Summer storm continues: Selling may begin to ease, but markets remain unstable

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Japan Equity Strategy

“Summer storm” continues: Selling may

begin to ease, but markets remain unstable

Investment Strategy

17 July 2026

Sharp selling may begin to ease, but markets likely to Investment Strategy

remain unstable for now Japan

The “summer storm” that has disrupted stock selection since late-June has yet to Masashi Akutsu >>

Strategist

subside. Strong selling pressure has emerged in AI stocks and broader indices continue BofAS Japan

to perform poorly. Once momentum stocks break down, elevated P/E multiples and +81 3 6225 7754

masashi.akutsu@bofa.com

concentrated positioning tend to discourage buying on weakness, making the timing of a

Tetsuhiro Tokuyama >>

recovery difficult to gauge. For now, our provisional view is twofold: (1) the sharp selling Strategist

could begin to ease soon; and (2) a sustained recovery is unlikely before early August. BofAS Japan +81 3 6225 8499

Meanwhile, we continue to monitor whether concentrated selling in specific areas tetsuhiro.tokuyama@bofa.com

spreads to the broader market.

First, as we have previously noted, the sell-off in high-beta AI stocks was foreseeable. As

measured by the dispersion of returns (standard deviation) across beta quintiles, the gap

had widened to unsustainable levels (Exhibit 1). In the typical pattern, high-beta stocks

decline sharply first after return dispersion peaks. After that, the market direction

generally remains intact, but momentum tends to fade from prior levels. High-beta

stocks, many of which are AI names in the current cycle, have thus far closely followed

this historical pattern. Based on this framework, the sharp selling could gradually begin