TOPIX

Energy costs are rising. Interest rates are rising. Raw material costs are rising. All three are happening at once, and all three trace back to the same chokepoint: the Strait of Hormuz, effectively closed since 28 February and still not reopened despite the 8 April ceasefire. In a country that imports 94.2% of its crude from the Middle East, there is no path to consumption growth while this persists. This blog has been bullish on Japan: rising wages, the end of deflation, corporate governance reform. That broad view is not being abandoned. But the hope that the “new Japan” narrative extends to domestic consumption is not supported by the data. The structural reasons why Japan’s policy response is inadequate are explored in a companion piece, The Shrinkflation State. This article traces the macro data and its implications for corporate earnings. ...

This is Part 2 of a two-part series. Part 1 covered the June 2026 Code revision and the ¥126 trillion ($840bn) cash question. Part 1 described the revised Corporate Governance Code – what it asks companies to prove. This article covers what happens to those that do not comply. There are two sources of pressure. The first is structural: a multi-year reconstitution of the TOPIX index that will eject roughly 500 companies by July 2028. The second is behavioural: an activist and institutional investor community that submitted a record 399 shareholder proposals in the 2025 AGM season and is preparing for a 2026 season that falls immediately after the Code revision. ...

For over a decade, the default recommendation for retail investors worldwide has been simple: buy a global index fund and forget about it. The MSCI All Country World Index, or its close cousin, the S&P 500, became the intellectual path of least resistance. And for a long time, it worked beautifully. But the conditions that powered that trade are shifting. I believe we are entering a period where Japanese equities will meaningfully outperform global indices. The argument is not a short-term tactical call. It is a structural argument built on five mutually reinforcing pillars. ...

If your portfolio looks like most Western retail investors’ portfolios, it is heavily allocated to US equities, probably through an index fund that gives you roughly 65% exposure to American companies. That allocation has served you well for the past decade. The question is whether it will continue to do so, and whether you are missing something by not looking elsewhere. Goldman Sachs, JPMorgan, BlackRock, Janus Henderson, Invesco, and Daiwa Asset Management have all published constructive outlooks on Japanese equities for 2026. These are not speculative calls from boutique firms. These are the largest asset managers and investment banks in the world, and they are allocating real capital. ...