Economic Background - Japan's economy is experiencing a mild recovery under persistent re-inflation, contrasting with the deflationary stagnation faced by former Prime Minister Abe Shinzo[8] - The Consumer Price Index (CPI) growth peaked at 4% in 2022, driven primarily by high food and energy prices, with inflation remaining above the Bank of Japan's 2% target[9] - Domestic demand has been the main driver of GDP growth, contributing over 1 percentage point to actual GDP since Q3 2024, while external demand has weakened due to tariff impacts[13][19] Policy Outlook - The new Prime Minister, Takashi Sanae, aims for an "expansionary but responsible fiscal policy," with expectations of a rising fiscal deficit ratio in 2026, constrained by debt risks[30] - Monetary policy is expected to remain accommodative, with the Bank of Japan likely to raise interest rates by 30-50 basis points in 2026, despite a cautious stance[35] - Strategic investments in 17 key industries, including AI and semiconductors, are planned to stimulate growth over the next five years[30] Market Impact - The "Takaichi Trade" has emerged, characterized by rising Japanese stocks and weakening yen and bonds, with expectations of a bullish stock market and bearish bond and currency outlook for 2026[40] - The Nikkei 225 index has seen a 26% increase from January to November 2025, driven largely by technology stocks, which contributed approximately 70% of the gains[49] - Japanese government bonds are expected to face upward yield pressure due to ongoing fiscal expansion and reduced demand from domestic and foreign investors[40] Risks and Challenges - The government faces significant political pressure, limiting the effectiveness of policy implementation, as the ruling coalition lacks a majority in the Diet[39] - External shocks, particularly from U.S. tariff policies, are likely to continue impacting Japan's export sectors, especially in automotive and electronics[22][25] - Input inflation remains a challenge, potentially constraining consumer spending and complicating wage growth dynamics[20]

Group 1: Report's Investment Rating - No investment rating information for the industry is provided in the report. Group 2: Core Views of the Report - After the Japanese bond yield broke below 2%, it remained in a long - term low - level oscillation. The weak economic reality restricted the upward movement of the yield, but there were still significant obstacles to further decline. The Japanese stock market, on the other hand, experienced a long - bull market due to factors such as positive macro - economic expectations, improved corporate micro - profitability, and the support from the Bank of Japan [1]. Group 3: Summary Based on the Directory 1. Japan's Stock and Bond Review and Insights ➢ Japanese Bonds: Long - term Oscillation after Breaking below 2% - **1990 - 2018 Phases**: From 1990 to 1998, the 10 - year Japanese bond yield was in a downward period, dropping from over 8% to 0.77%. From 1999 to 2008, it was in an oscillation period, fluctuating around a 1.5% central level. From 2008 to 2018, under continuous and substantial monetary policy easing, the yield steadily declined and remained in a low - level oscillation. Since 2018, as Japanese monetary policy gradually normalized, the bond's elasticity increased, and the yield moved from a long - term zero - interest state to positive interest [10]. - **1998 - 1999**: Fiscal adjustment and the Asian financial crisis led to a significant deterioration of the Japanese economy. The Bank of Japan cut interest rates, causing the 10 - year Japanese bond yield to break below 2% in October 1997 and reach a low of 0.77% in October 1998. Subsequently, due to the imbalance between the supply and demand of national bonds (the government's large - scale fiscal expansion increased bond issuance, while the main buyer, the Ministry of Finance's Fund Management Bureau, suspended bond purchases), the yield quickly rebounded to 2.43% [13][14][19]. - **2002 - 2003**: The Japanese government adopted fiscal austerity while the central bank implemented loose monetary policies. The 10 - year Japanese bond yield started a new downward trend in February 2002 and reached a low of 0.43% in June 2003. After 2002, the global economic recovery improved Japan's economic outlook, and the yield rebounded. The sell - off by commercial banks using the VAR model accelerated the bond market's adjustment, with the yield rising by nearly 120BP from June to September 2003 [20][22][23]. ➢ Japanese Stocks: Long - Bull Trend after 2013 - After hitting a historical high in 1989, the Japanese stock market entered a long - term correction. In 2013, it started a new long - bull market, reaching a new high in February 2024. As of the end of October 2025, the Nikkei 225 index was at 52,411.34 points, a cumulative increase of 512.27% compared to the beginning of 2012 [28]. - Abenomics was an important catalyst for the rise of the Japanese stock market. In 2013, the Abe cabinet launched a 20.2 - trillion - yen economic stimulus package, the Bank of Japan introduced the QQE policy, and the government launched the "Japan Revitalization Strategy". Multiple factors such as positive macro - economic expectations, the development of high - tech industries, and the support from the central bank led to a double - whammy of improved corporate profitability and valuation, driving the long - bull market [31][32].

回顾整个2024年，日元一直处于动荡不安之中。特别是在去年年中，在美元的强势打压下，日元对美元 汇率屡创新低，一度跌破160大关。在美联储不断推迟降息时间点以及日本央行加息行动不及预期的共 同影响下，显著的美日利差不断给日元汇率带来下行压力。 在此情况下，日本政府也曾多次采取措施对外汇市场进行干预，但总体来看效果不佳。相比于日本政 府，日本央行的行动被认为更能影响日元汇率表现。不过，在整个2024年日本央行在加息问题上始终保 持谨慎的态度，动作幅度不大，很难给日元汇率带来有效支撑。 2025年1月，日本央行终于开始行动。在1月的货币政策会议上，日本央行以8比1的多数票决定把货币政 策利率从0.25%提升至0.5%，符合市场预期。虽然日本央行在2024年3月和7月也曾加息两次，但加息幅 度均未达到25个基点。 在刚刚过去的10月，日元对美元持续贬值，不免让人想起2024年日本政府出手干预日元汇率的情景。不 过，从目前的情况看，市场普遍认为，当前日元汇率还没跌到触发干预的红线，因此日本政府暂时还不 会主动入市。 与此同时，日本央行最新公布的10月货币政策会议纪要显示，有一名委员明确表示，"进一步推进政策 利率正常 ...

Core Viewpoint - Japan's new Prime Minister, Sanna Takashi, is set to establish a multi-year fiscal target to allow for more flexible spending, signaling a shift away from strict fiscal consolidation commitments amid ongoing economic challenges such as aging population, rising prices, and high government debt [1][2]. Fiscal Policy Changes - Takashi has abandoned the idea of using annual basic fiscal surplus as a target for fiscal consolidation, opting instead for a multi-year approach, which some market participants interpret as paving the way for increased fiscal spending [2]. - The current government aims to achieve a basic fiscal surplus by the end of the fiscal year 2026, but previous administrations have repeatedly postponed this goal due to extensive spending plans [2][3]. - Takashi has not ruled out the possibility of reducing Japan's consumption tax, reinforcing expectations that her government will prioritize economic stimulus over improving deteriorating public finances [2]. Economic Stimulus Plans - The Japanese government is drafting an economic strategy focused on three pillars: addressing living costs and inflation, crisis management investment, and strengthening defense and diplomatic capabilities [4]. - The proposed economic measures may include tax incentives for 17 key industries, including artificial intelligence and semiconductors, to stimulate investment, although there are concerns about the broad scope of these sectors [4][5]. - The scale of the economic stimulus plan is under scrutiny, with expectations that it may exceed the approximately 13.9 trillion yen (about 641.72 billion RMB) budget for the fiscal year 2024 [4]. Structural Economic Challenges - Japan faces significant structural economic issues, including an aging population, which accounts for over 29% of the population aged 65 and older, leading to decreased consumption capacity and market demand [7]. - Rising prices have created financial strain on urban residents, impacting public trust in the government and presenting a political challenge for Takashi's administration [7]. - Japanese companies have struggled with innovation, particularly in technology sectors like the internet and artificial intelligence, falling behind competitors from the US and China [7].

Market Overview - The Dow Jones Industrial Average increased by 74.8 points, or 0.16%, closing at 46,987.1 [2] - The Nasdaq Composite decreased by 49.45 points, or 0.21%, closing at 23,004.54 [2] - The S&P 500 rose by 8.48 points, or 0.13%, closing at 6,728.8 [2] - European markets showed mixed results, with the Euro Stoxx 50 down by 44.65 points, or 0.80% [2] - The Hang Seng Index fell by 244.07 points, or 0.92%, closing at 26,241.83 [2] Legislative Developments - A significant breakthrough in bipartisan negotiations has occurred, with at least 10 Democratic senators ready to support a package to end the government shutdown [3] - The proposed package includes spending bills and short-term funding measures to keep the federal government operational until the end of January [3] Transportation Sector - The U.S. Transportation Secretary warned that ongoing government shutdowns could lead to a more severe reduction in flights, with a potential increase in flight cancellations to 10% if the shutdown continues [4] - Recent data indicated that over 14,792 flights were delayed and 3,788 flights were canceled over the weekend due to air traffic controller shortages [4] Economic Indicators - Bank of America predicts that the Federal Open Market Committee will not lower interest rates again during Jerome Powell's term, which ends in May 2026 [5] - China's Consumer Price Index (CPI) showed a year-on-year increase of 0.2% in October, reversing a previous decline, while core CPI rose by 1.2%, marking the highest increase since March 2024 [6] Corporate Developments - Pfizer has acquired Metsera for $10 billion, concluding a competitive bidding process that saw Novo Nordisk withdraw due to antitrust concerns [9] - Elon Musk indicated that achieving the ambitious $400 billion EBITDA target for Tesla by 2025 is challenging but feasible with significant effort [9] Leadership Changes - The BBC's chairman and news director resigned amid allegations of biased reporting, particularly concerning coverage of the Israel-Hamas conflict and other sensitive topics [10]

Core Viewpoint - The election of Kishi Sanae as Japan's new Prime Minister marks a new phase for the struggling Japanese economy, which is now facing new challenges. The government's macroeconomic policy aims to stimulate consumption and investment while controlling inflation through a combination of tax cuts and cautious interest rate hikes [1]. Fiscal Policy - Kishi Sanae's government inherits the expansionary fiscal policy tradition of Abenomics, emphasizing macroeconomic intervention to address structural stagnation. The government plans to implement expansionary fiscal policies, maintain loose monetary policies, and pursue structural reforms [2]. - The fiscal policy focuses on three main areas: controlling inflation, investing in growth industries, and enhancing national security. Plans include lowering fuel taxes, increasing personal income tax exemptions, and supporting small and medium-sized enterprises [2]. - The government aims to boost investment in sectors such as semiconductors, AI, quantum technology, aerospace, advanced healthcare, and advanced manufacturing to drive economic recovery through technological innovation [2]. Monetary Policy - Kishi Sanae's government intends to maintain a loose monetary policy to prevent rising financing costs from hindering economic recovery. However, the approach is more cautious compared to the previous administration's extreme monetary easing [4]. - The primary goal of the current monetary policy is to maintain a stable financial environment while using expansionary fiscal policies to stimulate demand and promote innovation [4][6]. - Kishi Sanae has previously expressed skepticism about raising interest rates, attributing current inflation primarily to rising raw material costs rather than domestic economic growth [5]. Economic Challenges - Japan's economy is at a critical juncture, facing the challenge of balancing inflation control, economic growth, and government debt crisis prevention. This balance will test Kishi Sanae's macroeconomic policies [7]. - The government debt has reached a record high of 1,323.72 trillion yen, increasing by 26.55 trillion yen from the previous fiscal year. This raises concerns about potential debt crises if fiscal expansion continues [8]. - The core consumer price index (CPI) has been rising for 48 consecutive months, with inflation exceeding 3% since January. This situation necessitates prioritizing inflation control while managing the risks associated with high government debt [9].

Core Viewpoint - Japanese Prime Minister Sanae Takaichi announced a shift in fiscal policy, moving away from annual assessments of the primary fiscal surplus target, aiming for a balanced budget over several years instead [1][2] Group 1: Fiscal Policy Changes - Takaichi's comments suggest a commitment to increasing government spending, reminiscent of former Prime Minister Shinzo Abe's "Abenomics" approach, which dominated Japanese politics for nearly a decade [1] - The government aims to achieve nominal GDP growth exceeding Japan's national debt yield while reducing the debt-to-GDP ratio, although specific strategies to achieve these goals were not detailed [1][2] - Takaichi emphasized the need for a long-term perspective in financial management, shifting focus from achieving annual fiscal balance [2] Group 2: Economic Advisory Changes - Recent appointments to Takaichi's economic advisory group reflect a return to the loose monetary and fiscal policy stance associated with "Abenomics," including the inclusion of former Bank of Japan Governor Masaaki Shirakawa [5] - The newly formed Growth Strategy Committee includes inflation advocates and economists known for promoting expansionary policies, indicating a potential shift in economic strategy [5] Group 3: Market Reactions and Concerns - Takaichi's fiscal policy is described as "responsible" yet expansionary, avoiding direct criticism of the Bank of Japan's interest rate hikes, which may be a response to market concerns [6] - The scale of the economic stimulus package aimed at supporting the economy and households remains unspecified, but if it exceeds expectations, it could raise concerns about Japan's fiscal health and increase long-term bond yields [6] - Takaichi rejected accusations of "fiscal populism," asserting that her policies differ from irresponsible populist measures that rely on cash handouts for popularity [6]

Core Viewpoint - Japan's ruling party plans to raise approximately 1 trillion yen (about 6.5 billion USD) annually to support the development of advanced semiconductor manufacturing and AI ecosystems, aiming to regain its status as a semiconductor manufacturing leader and become an AI superpower comparable to the US and China [1][4]. Funding Strategy - Starting from the new fiscal year in April, most government funding will be sourced through regular budgets rather than supplementary budgets, marking a shift from previous years [1][2]. - This change is expected to provide a more stable funding source without disrupting market stability [1][2]. Government Investment - Since the new semiconductor revival strategy was established in 2021, Japan has allocated approximately 5.7 trillion yen to support domestic semiconductor and AI sectors, primarily through supplementary budgets [1][2]. - In the previous year's supplementary budget, about 1.5 trillion yen was allocated for semiconductor and AI support, part of a larger commitment of over 10 trillion yen for these technology sectors [2]. Key Players - Approximately 1.7 trillion yen of the allocated government funds has been directed to Rapidus Corp., which aims to achieve mass production of cutting-edge 2nm chips by 2027 [2][3]. - Rapidus is positioned as Japan's core player in advanced chip manufacturing, competing with TSMC in logic chip foundry services [2][3]. Industry Dynamics - The majority of the world's advanced AI chips are currently manufactured by TSMC, while Japan is increasing its support for domestic chip manufacturers to enhance their advanced process production capabilities [3]. - Rapidus, established in 2022, has received significant government financial backing and support from major Japanese companies, including Toyota and Sony, to develop 2nm chips for AI, autonomous driving, and quantum computing applications [3]. Economic Policy Context - The new Prime Minister, Fumio Kishida, is expected to revive "Abenomics," focusing on aggressive fiscal stimulus and industrial support policies, which could positively impact Japan's domestic demand and core technology sectors [4][5]. - The anticipated continuation of Abenomics is seen as a long-term catalyst for the Japanese stock market, particularly benefiting technology stocks and sectors related to semiconductors and AI [5]. Historical Perspective - Japan's past missteps in technology investments have led to missed opportunities in key sectors like IT and the internet, prompting the current government to double down on semiconductor and AI technologies to secure a leading position in these critical fields [6].

Macro Strategy Overview - The report indicates that the current bull market is experiencing a pause and is undergoing a phase of consolidation, with expectations of continued volatility in the near term [1][6]. - The U.S. Federal Reserve is likely to continue its interest rate cuts in December, with a high probability of a 25 basis point reduction, as inflation remains manageable and the job market shows signs of weakness [6][29]. - The economic performance in the first three quarters of 2025 has exceeded expectations, with GDP growth at 5.2%, but there are increasing pressures on domestic demand [6][43]. Overseas Economic Environment - Following the U.S.-China trade negotiations, tariffs on Chinese goods have been reduced by 10%, although ongoing tensions between the two countries are expected to persist [6][30]. - The overall impact of tariffs on U.S. inflation has been limited, with inflation expected to remain stable due to insufficient demand [6][20]. Domestic Economic Environment - Domestic consumption and investment are showing signs of decline, while external demand remains relatively strong, indicating a divergence in economic performance [6][43]. - The report highlights that the policy environment is expected to remain stable, with a focus on infrastructure investment to support economic growth [6][55]. A-Share Market Strategy - The A-share market is currently in a phase of consolidation, with a shift towards a more balanced investment style as external disturbances ease [7][12]. - The report suggests a cautious approach to investment in the A-share market, with a focus on sectors that are expected to benefit from technological innovation in the medium to long term [7][8]. Asset Allocation Insights - The report presents a neutral outlook for major asset classes, including A-shares, Hong Kong stocks, and U.S. stocks, indicating a shift from a relatively optimistic stance in previous reports [8]. - The recommendation is to adopt a balanced asset allocation strategy while remaining vigilant for opportunities in technology and other growth sectors [8][7].

Core Viewpoint - The article discusses the emergence of "Sanae Economics" under Prime Minister Sanae Takaichi, drawing parallels with "Abenomics" and highlighting potential economic challenges Japan may face, including a booming stock market but stagnant equipment investment [1][2][4]. Economic Policy Overview - Takaichi aims to lead Japan out of the "lost 30 years" since 1993, focusing on rebuilding Japan's economic resilience and prosperity [2]. - "Sanae Economics" is seen as an evolution of "Abenomics," with a focus on bold monetary easing, flexible fiscal policies, and crisis management investments [5][6]. Investment Trends - Japan's substantial investment in the U.S. is highlighted, with a commitment of $550 billion (approximately 85 trillion yen) aimed at bolstering U.S. manufacturing and supporting anti-China policies [7][8]. - The projected equipment investment for 2024 is 98.3 trillion yen, indicating a significant increase from 2020, yet concerns remain about Japan's domestic investment capacity [7]. International Relations - Takaichi's administration emphasizes the importance of a constructive relationship with China while addressing economic security concerns, suggesting a complex diplomatic balancing act [10][11]. - The article notes that Japan's investment strategy may lead to missed opportunities domestically, as funds are directed towards the U.S. rather than local manufacturing [11].