Following September's interest-rate moves, Japanese equities are expected to remain firm in October despite continuing to feel the impact of rising rates. Upside for long-term rates is expected to be limited, while the unwinding of valuation discounts at home and abroad could also provide a tailwind.
With interest rates having emerged as a major market theme in September, rate movements will remain a key focus in October. Domestically, terminal rate pricing has risen to around 3%, but that pricing has recently shown signs of pausing, and the upside for long-term rates is expected to be limited.
The sense that Japanese equities are overvalued is easing, and their relative underperformance compared with overseas equities is also beginning to moderate. Corporate earnings remain firm, and revision rates by sector are generally trending toward upward revisions, with AI and semiconductor-related companies continuing to drive earnings.
Buying interest could spread across a broad range of sectors, including domestic-demand sectors, and corporate earnings are expected to improve across a wider base. Political developments in Japan and the US will also be closely watched as factors that could affect market sentiment.
Market conditions may shift against the backdrop of political events in Japan and the US, but the environment surrounding Japanese equities is expected to remain favourable, supported by a pause in upward pressure on interest rates and continued solid earnings growth.