Japan Insight: BofA Strategy Monthly: Manufacturing cycle still recovering, wary of historic concentration in positions

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Japan Insight: BofA Strategy Monthly: Manufacturing cycle still recovering, wary of historic concentration in positions

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Japan Insight: BofA Strategy Monthly

Manufacturing cycle still recovering, wary

of historic concentration in positions

Investment Strategy

30 June 2026

Recovery in manufacturing cycle: Major benefits for Investment Strategy

Japanese companies Japan

Rapid growth in AI demand is boosting earnings at Japanese companies. Meanwhile,

Masashi Akutsu >>

concerns about the sustainability of the AI rally are beginning to emerge and caution is Strategist

warranted during the summer months. BofAS+81 3 6225Japan7754

masashi.akutsu@bofa.com

We believe the recovery in manufacturing driven by AI demand is still only halfway Tetsuhiro Tokuyama >>

complete. The recovery since the Fed began cutting rates last year resembles the Strategist

trajectory following the 1998 rate cuts that fostered the dot-com bubble. At that time, BofAS+81 3 6225Japan8499

however, consecutive Fed rate hikes contributed to the collapse of the dot-com bubble, tetsuhiro.tokuyama@bofa.com

whereas the Fed has yet to begin raising interest rates this time. In Japan, the AI

investment boom and the Takaichi administration's growth strategy should support

corporate investment and profit growth.

Historic level of concentration in positions; be wary of

rising interest rates

On the other hand, position concentration has likely reached historic levels. The

dispersion of returns across beta quantiles has surpassed peaks seen in past overheated

markets and greater levels were observed only during extreme episodes such as the dot-

com bubble and the global financial crisis (GFC). If expectations for Fed rate hikes