1. 2024 Highlights: Record Gains Amid Policy Shifts and Corporate Reforms

• Performance Overview:
  The Nikkei 225 rose 19.2% in 2024, driven by:

  • Policy Normalization: The Bank of Japan began normalizing monetary policy, signaling confidence in economic recovery.
  • Private Consumption: Years of stagnation began to ease, boosting domestic demand.
  • Corporate Reforms: Increased shareholder returns and robust earnings attracted foreign capital.

• Challenges:

  • Uncertainty over Japanese interest rates and a muddled political outlook.
  • Concerns over U.S. trade policy under President-elect Donald Trump.

2. 2025 Outlook: Continued Constructive Momentum

Bernstein analysts maintain a positive view on Japanese equities, citing the ongoing multi-year bull cycle driven by the "4Rs":

• Reform: Corporate governance improvements.
• Restructuring: Better operational efficiency and cost management.
• Reflation: Stimulus efforts supporting economic activity.
• Reshoring: Increased domestic production amid global trade tensions.

3. Sector Preferences

Bernstein highlights sectors with domestic exposure as key opportunities:

• Bullish Sectors:

  • Healthcare equipment and services.
  • Consumer durables and apparel.
  • Media, energy, and household goods.
  • Financials and retail.

• Headwinds Expected:

  • Food and staples retailing.
  • Transportation.
  • Telecommunications and utilities.

4. Global Positioning and Trade Dynamics

• Japan's equities remain underweighted by global investors, presenting opportunities for increased inflows.
• Domestically-oriented stocks are expected to outperform, serving as a safe exposure to Asia amid U.S.-China trade tensions under the Trump administration.

5. Long-Term Opportunities in Exporters

While domestic sectors are the current focus, Bernstein notes that Japan's global dominance in industries like electronics and automobiles makes exporters attractive for long-term growth.

For sector-specific financial insights, leverage the Sector Historical Overview API or explore market valuation trends with the Sector P/E Ratio API.