Yoo Shin-ik

Japan is rapidly moving toward fiscal surplus, with corporate profits booming due to a weak yen and surging AI/semiconductor/material exports. Tax revenue improvement has pushed the bond dependency ratio to a record low. Government spending on social security and defense is fueling domestic demand while construction investment, led by government-issued construction bonds, is set to turn positive. These trends put Japan on the verge of a 'super boom' by 2027-2028, making Japanese equities attractive.

High US interest rates are the new constant, raising the hurdle for equity returns to at least 5%. This forces sector rotation from growth/tech into steady consumer defensive and value sectors whose valuations are more attractive in a high-rate regime. Merrill Lynch is already cutting info tech to neutral and going overweight consumer/infrastructure.

Current long-term interest rates are already reflecting the peak of the tightening cycle. Short-term bonds offer attractive yields with low duration risk, and they serve as a hedge against the expected slowdown in liquidity and economic activity.