Japanese stocks are on a tear. For the third time this week, the Topix Index closed at a record highup 1.6% to 3,107.68after Japan’s economy delivered a surprise: GDP grew 1% annualized in Q2, more than double what economists were bracing for. That set off a wave of buying, especially in financials, as investors ramped up bets that the Bank of Japan may be forced to hike rates sooner than expected. Bank stocks soared 9.4% this weekmarking their biggest five-day jump since last year’s post-crash rebound. Meanwhile, SoftBank (SOBKY) rallied 6.4% on renewed optimism around its AI exposure.
But here’s what matters more: the big money’s coming back. Foreign investors appear to be rotating hard into Japan’s large caps, especially those in the Topix Core 30 index, which jumped 2.6% on Friday. That group massively outpaced smaller stocks, suggesting this isn’t just local enthusiasmit’s global capital reallocating. Only 52% of stocks in the Topix advanced, underscoring just how concentrated the buying was. Strategists say this could be part of a broader shift away from US equities, as expectations grow that the Fed will cut rates and the dollar will lose steam. That makes Japan’s assets, especially banks, look increasingly attractive.
Add in a little political heat from across the Pacific, and the rate hike drumbeat gets louder. US Treasury Secretary Scott Bessent called Japan behind the curve on inflation, helping to push October rate hike odds to 49%, up from just 39% earlier in the week. The yen firmed 0.5% to 146.95, while 10-year JGB yields climbed to 1.56%, their highest in years. Daiwa’s Yugo Tsuboi thinks the Nikkei could level off in the short term, but says the next leg up may arrive in Septemberright around the time the Fed is expected to ease. If that happens, Japan could be one of the few markets tightening into strength.
This article first appeared on GuruFocus.
AloJapan.com