2026-02-24 23:01:00
Goldman sees Japan’s rally extending on political stability and reform momentum — but sustainable gains hinge on ROE delivery.
Summary:
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Takaichi’s landslide boosts political stability
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History suggests post-election multiple expansion
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Governance reform key to next leg
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ROE improvement central to re-rating
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Fiscal concerns easing post-election
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Foreign positioning improving, not stretched
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Reform delivery now critical
Japanese equities could have further upside following Prime Minister Sanae Takaichi’s decisive snap election victory, according to Bruce Kirk, Chief Japan Equity Strategist at Goldman Sachs Research.
Kirk argues the result is “extremely consequential” for both political stability and equity valuations. Historically, when an LDP-led coalition secures a two-thirds supermajority, markets have delivered an average 20% gain in the first three months, followed by further multiple expansion over the subsequent nine months. The key driver is reduced political risk: a strong mandate increases the likelihood of longer leadership tenure, policy continuity, and a lower equity risk premium — dynamics that typically attract foreign capital.
Near term, investors will look for clarity on defence, economic security and US-Japan relations, particularly ahead of the upcoming Takaichi–Trump summit. But the more durable catalyst lies in structural reform and corporate governance. While governance reform regained momentum in 2023 and shareholder returns have surged to ¥40–45 trillion annually from ¥6–7 trillion pre-Abenomics, return on equity has stalled around 9–10%. For a sustainable valuation re-rating, Kirk says investors need tangible ROE improvement through stronger shareholder returns, growth investment, M&A consolidation and deeper restructuring.
Fiscal policy remains a watchpoint. Concerns centred on a proposed temporary cut to the food consumption tax. However, the scale of Takaichi’s victory may actually reduce the risk of populist fiscal measures, easing pressure in FX and rates markets.
Foreign positioning is improving but not stretched. Mutual funds remain underweight Japan, and renewed outperformance versus US equities could pull in further allocations.
Risks include policy missteps that unsettle bonds or FX, unexpected leadership change, global shocks, and the absence of normal market corrections. Still, Goldman believes Japan remains in the upward phase of its cycle, with reform delivery now the critical next step.
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This was interesting from Japan yesterday and has equity market implications:
