Why Japanese Stocks Could Keep Rallying

After a very strong 2025, Japanese stocks have built on those gains in 2026. The most recent catalyst has been the outcome of the snap election. Prime minister Sanae Takichi's resounding victory could pave the way for pro growth policies and might shift global investor perceptions about the Japanese market. I'm Alisa Nathan, and this is Goldman Sachs Exchanges. Today, I'm joined by Bruce Kirk, our chief Japan equities strategist and Goldman Sachs Research. He joins us remotely from Tokyo. Bruce, welcome back to Exchanges.

Hi, Alison. Thanks for having me on the show.

So let's just start with the recent news, Bruce. The election, of course, is the news of the day. You actually raised your target on Japanese equities on the back of Takahichi's victory. So how consequential really are these results?

Our view is that this election result is extremely consequential, both from a a political stability point of view within Japan and as a positive for the overall Japanese equities market itself. Now both of these factors, we think, are interlinked. And if you look at the performance following previous election results, which have been politically significant, you do seem to see that. So what we observe when we look at the three previous elections historically where an LDP led coalition has achieved a two thirds super majority in the lower house, and that would be 2005, 2012, and 2014. What you

But when we think about the market's reaction to this relatively historic election, is it really more about expectation of changing policies from this new prime minister, or is it really just investor perceptions shifting given some of the points you just made?

We think it's a combination of both. I think Ms. Takahi's policy agenda should become clearer over time, but I think you will see in the near term, I think you're gonna see more clarity around areas like defense, economic security, and the relationship between Japan and The US. Allison, as you know, we've got a summit coming up in March 19 between prime minister Takahichi and president Trump in Washington. So I think there should be a lot more clarity around that. And then, know, I I think from an investor perception point of view, it will really be around how much positive change investors th

Correct me if I'm wrong, Bruce. It seems like a lot of focus has been placed on a potential shift in fiscal policies with the election of Takayichi. Talk us through some of the implications of that.

I mean, I think going into the election itself, there were a number of concerns around fiscal sustainability. One of the areas that I think investors both in the FX market and the rates market were focused on was an election pledged by miss Takayichi to bring down the consumption tax on food for a a two year period and then to raise it again afterwards. And the logic behind that was that it would help alleviate the cost of living crisis for Japanese households. I think the concern that both investors in the rates market and the FX market had was, you know, I think it's easy to bring down taxes

Interesting. But going back to that point on corporate governance reform that you made, Bruce, and some of the positive momentum that could bring to the market, correct me if I'm wrong, but it has been a multiyear journey to bring about corporate governance reform in Japan. So talk to us a little bit about how successful that journey really has been and why investors should be optimistic about it ahead.