Value stocks are approaching their highest levels since 2025, against a backdrop of expectations for BOJ rate hikes. The main drivers are said to be movements in factor returns for BPR and forward EPR, with the focus expected to shift to selecting value stocks with high price momentum.
Japanese equities remain in a period of high volatility amid uncertainty over the situation in the Middle East, but the value factor has risen again since late March and is approaching its highest levels since 2025. While forward EPR is expected to make a larger positive contribution in the second half of 2025, BPR is expected to stand out from early 2026 onward. One factor cited as the backdrop is growing expectations for further interest-rate hikes by the Bank of Japan.
At the same time, in sectors where concerns have been raised about substitution by AI, BPR is said in some cases to be associated with weak performance, particularly among richly valued stocks, while a decline in the Revision Index (RI) is expected to contribute to return volatility. The commentary says that selecting stocks expected to deliver earnings growth, including low-beta stocks and those with high revisions, will be effective.
A comparison of factor returns in Japan and the United States indicates that, from 2026 onward, Japanese value stocks with high price momentum are likely to have a relative advantage in many situations. The view presented is that the medium- to long-term outperformance of value stocks will remain unchanged as long as expectations for BOJ rate hikes persist. The stocks cited are value stocks with high price momentum.