US investors are returning to the Japanese stock market.
On April 20, Bruce Kirk, Chief Japan Equity Strategist at Goldman Sachs Japan, stated that as the initial shock from the Middle East situation gradually subsides, market confidence has recovered, and North American capital has re-entered Japanese equity assets.
In an interview on April 20, Kirk pointed out that the stabilization of the yen exchange rate was a key factor driving this shift.
Boosted by inflows of US dollars, the Nikkei 225 Index has risen approximately 16% so far this month, not only erasing previous losses but significantly outperforming the Tokyo Stock Exchange (TSE) index's gain of about 8% and the S&amp;P 500 Index's performance over the same period.
He added that given that Japanese policymakers are unlikely to tolerate the yen falling below the current level near 160 per dollar, the participation willingness of US investors who have not hedged against currency risk may further increase.
<h2>US Capital Leads the Way; Japanese Stocks Show Attractiveness</h2>
Data from the Japan Exchange Group shows that while overseas capital overall was net selling Japanese stocks in March, North American investors were the only overseas group maintaining net buying—a trend that has continued during the current rebound.
Kirk stated that investors increasingly attribute the 13% drop in the Nikkei 225 Index in March to global factors rather than issues with Japan's own fundamentals, which gives them more confidence when re-entering the market.
He believes the speed of the Japanese stock market's rebound exceeded expectations. Structural advantages such as ample strategic petroleum reserves and diversified sources of liquefied natural gas have endowed the Japanese economy with significant resilience amid current geopolitical and energy market uncertainties. Kirk said:
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Japan is actually in a quite robust position. Once market focus shifts from short-term to medium-term, the pace of capital inflow will be extremely fast.
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<h2>Domestic Catalysts Intensify; Corporate Governance Reforms Accelerate</h2>
Kirk pointed out that multiple domestic catalysts are reinforcing the logic for going long on Japanese stocks. The upcoming earnings season, revisions to mid-term strategic plans, and annual general meetings are expected to increase market scrutiny of capital efficiency and balance sheet utilization.
Policy support is also in place. The Financial Services Agency of Japan is expected to finalize a new version of the corporate governance code before summer this year, further pressuring listed companies to break up cross-shareholdings, release excess cash, and enhance shareholder returns.
However, Kirk also admitted that the sustained repricing of Japanese stock valuations ultimately depends on a substantial improvement in return on equity (ROE).
Although some large banks have set ROE targets around 15%, approximately 44% of companies in the TSE Index still have an ROE below 8%, meaning the task of structural improvement remains arduous.
<h2>Geopolitical Risks Persist; Goldman Sachs Slightly Lowers Target Price</h2>
Despite the warming market sentiment, Kirk warned that risks of further corrections remain.
He cautioned that if the Middle East situation escalates again and drags down global economic growth, Japan—which is highly dependent on the global economic cycle—will face significant pressure.
The Goldman Sachs team has slightly lowered its 12-month target for the TSE Index from 4,300 points to 4,200 points to reflect uncertainties stemming from the Iran war. However, Kirk remains relatively optimistic about the overall outlook:
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This is not the mainstream expectation in the market currently.
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He said:
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When foreign investors compare Japan horizontally with other developed markets under the current environment, Japan actually possesses quite a number of advantages.
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Goldman Sachs strategist Bruce Kirk notes that as the impact of the Middle East situation fades and the yen stabilizes, North American capital is flowing back into Japanese equity assets. North American investors were the only group to maintain net buying amidst a backdrop of net overseas selling in March. Meanwhile, accelerated corporate governance reforms and catalysts from earnings season have intensified domestic positive factors, strengthening the bullish logic

- American investors are returning to the Japanese stock market as confidence recovers following initial shocks from the Middle East situation.  
- Key factors include the stabilization of the yen and the resilience of the Japanese economy, supported by structural advantages amidst geopolitical and energy market uncertainties.  
- However, risks remain, as Goldman Sachs has slightly reduced its TOCOM index target due to ongoing geopolitical tensions, but maintains an overall optimistic outlook for Japan compared to other developed markets.

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"Betting on Yen Stabilization + Diminishing War Impact": US Investors Return to Japanese Stock Market