Nomura Securities' Research Division presents five checkpoints for the outlook for Japanese equities in the second half of 2026 and beyond, against a backdrop of earnings growth in the first half and overseas investors' capacity to buy.
Profit growth at Japanese companies has gained strength since 2022, while TOPIX EPS has expanded since the post-COVID shock period. Nominal GDP has grown to nearly ¥700 trillion, and as prices rise with the end of deflation, companies are passing through higher costs, creating conditions conducive to higher profit margins.
Business sentiment related to AI and semiconductors remains a key driver. The forecast for fiscal 2026 ordinary profit has been revised upward from an initial figure of more than ¥6 trillion to more than ¥13 trillion, or more than 2.2 times the original estimate, and upward revisions continued as of July.
Overseas investors' capacity to buy Japanese equities is thought to be returning to around its 2015 level, and sustained buying has been confirmed since April 2025. Inflows of overseas funds could be a factor indicating the unwinding of past undervaluation.
The first checkpoint is a comparison of nominal GDP growth and the 10-year Japanese government bond yield. Periods when long-term interest rates exceed the 3% threshold will be an important indicator for assessing the balance between monetary policy and the market.