Andrew McCagg, senior client portfolio manager at Tokyo-headquartered , for instance, also sees further upside for Japanese equities, amid a solid macro backdrop, positive corporate reforms and earnings, and the return of foreign investors; any monetary policy misstep remains a risk to the market, however.

Japanese growth should be positive this year despite a brief setback and some volatility in consumption patterns. Lombard Odier expects the economy to expand by around 1 per cent in both 2025 and 2026. It anticipates that the Bank of Japan (BoJ) will hold off on further rate rises until January 2026, while dollar weakness could be the most important factor supporting the Japanese yen.

Should the market price-in two full additional BoJ hikes, the Swiss private bank thinks this as an opportunity to re-invest in Japanese Government Bonds (JGB) at more compelling valuations. Meanwhile, rising yields and declining hedging costs could spark a wave of capital repatriation, including from US Treasuries, a risk it is monitoring closely, but see little sign of yet. “Rapid changes in the behaviour of Japanese investors, who hold an estimated $3 trillion in foreign assets, could then have profound implications across other markets,” the firm said in a note this month.

Ronald Temple, chief market strategist at New York-headquartered investment manager , are also constructive about Japanese stocks. See more here.