Japan after the election: why we stay constructive (and what we’re watching)

Japan after the election: why we stay constructive (and what we’re watching)

Japan’s election result delivered something markets tend to like: clarity. A decisive mandate reduces policy uncertainty, supports confidence, and can encourage businesses and consumers to make decisions rather than wait on the side-lines. And the market has reacted positively to this, with the Nikkei 225 index closing Monday’s market session up 3.89%.

MGTS Qualis Growth is overweight Japan, reflecting our view that the market still offers an unusually attractive mix of quality companies, improving shareholder outcomes, and underappreciated structural change.

What looks positive for Japanese Equities?

Policy certainty can be a tailwind.

Clear direction often lowers the “uncertainty discount” embedded in equity valuations and supports broader market participation.

Corporate behaviour continues to improve.

Japan’s governance momentum remains one of the most durable drivers of returns: more focus on capital efficiency, fewer legacy cross-shareholdings, and a rising willingness to return cash to shareholders through dividends and buybacks.

Reflation can help earnings—if it stays orderly.

A world of modest inflation and firmer wages is very different from Japan’s deflationary past. For well-run companies with pricing power and operational discipline, this environment can support earnings resilience and upgrade cycles.

Opportunity extends beyond the headline index.

Japan isn’t just a handful of mega-cap exporters. Many of the most interesting prospects sit in under-researched businesses where better capital allocation and “self-help” improvements can meaningfully lift shareholder value.

The key risk: bond yields

The main constraint we’re watching is the Japanese government bond market.

Yields can rise for healthy reasons (stronger nominal growth) or unhealthy ones (concerns around fiscal credibility or a disorderly repricing). The difference matters. An orderly rise in yields can be absorbed, particularly if earnings are improving. A sharp or disruptive move can tighten financial conditions, pressure equity valuations, and increase FX volatility for overseas investors.

Our positioning

Our Japan overweight is designed to capture the combination of:

• structural corporate improvement,
• disciplined capital returns,
• and selective reflation benefits at the company level.

At the same time, we stay pragmatic: if bond yields move in a way that destabilises risk assets, we would expect more volatility even if the longer-term thesis remains intact.

Bottom line

We remain constructive on Japanese equities following the election, supported by policy clarity and ongoing corporate evolution. The biggest swing factor over the next year is whether bond yields rise in an orderly, growth-consistent way—or in a way that tightens conditions too quickly.

Past performance is not a guide to future returns. The value of investments can fall as well as rise, and investors may not get back the amount invested.

Disclaimer –

This article does not constitute investment advice or an offer to sell or a solicitation of an offer to buy the products described within. You should consult your financial adviser before making any decisions.

Please note that any performance figures are provided for information purposes only and are not to a guide to future returns. The performance of your own investments may deviate due to a number of factors, including product charges, the timing of contributions & withdrawals and portfolio rebalancing.

Important information –

As always with investments, your capital is at risk. The value of investments is not guaranteed and the income from them can fall as well as rise. Investors may not get back the amount originally invested. Past performance is not a reliable indicator of current or future results and should not be the sole consideration when selecting a product. The basis of taxation may also change from time to time. We have not considered the suitability of these investments against your individual objectives and risk tolerance. This article is intended for information purposes only.

The MGTS Qualis funds are operated by Margetts Fund Management Ltd (MGTS) the Authorised Corporate Director. GWA Asset Management Ltd (GWAAM) has been appointed as the Investment Manager, a wholly owned Greaves West & Ayre Group business. GWAAM is authorised and regulated by the Financial Conduct authority and is entered on the Financial Services Register https://register.fca.org.uk/ under FRN 960226

Margetts have full responsibility for the management and operation of the funds as the Authorised Corporate Director.

Margetts Fund Management Ltd is authorised and regulated by the Financial Conduct Authority no. 208565. More information about MGTS can be found by visiting their website – MGTS (mgtsfunds.com).