Investment Rating - The report maintains an overweight stance on Japanese equities, with unchanged end-2025 share price targets of TOPIX at 2,800 and Nikkei 225 at 40,000 [2][7][26]. Core Viewpoints - The report anticipates support for Japanese stocks in the second half of 2025 from corporate reforms, fund flows, and macroeconomic factors such as Fed interest rate cuts and a potential Japan-US tariff agreement [2][14][39]. - Two main themes are identified as structural support for Japanese equities: corporate reform and fund flows [3][14][59]. Summary of Key Themes Corporate Reform - Corporate reforms are accelerating, with share buybacks announced in FY2024 nearly doubling year-on-year, indicating a strong momentum for profitability [4][15][39]. - The total shareholder return ratio for Japanese companies has risen to 60%, with 16% of TOPIX companies exceeding a total return ratio of 100% in FY2024 [41][42]. - Balance sheet normalization could potentially boost corporate value by up to 20%, with expectations for ROE to rise to the mid-9% level by FY2026 [17][42]. Fund Flows - A significant rotation of funds from overseas to Japan is expected, driven by rising interest rates and a shift in investment strategies among public pension institutions and banks [5][60]. - The report highlights a historical outflow of funds from Japan to the US, with expectations for a repatriation of capital back to Japan, providing structural support for Japanese equities [25][60]. - Fund inflows are anticipated to continue as the yen appreciates, leading to a decline in overseas securities investment by individuals [61][62]. Sector Outlook - The report recommends a barbell strategy focusing on domestic demand sectors while seeking upside in semiconductors and machinery, depending on trade agreement outcomes [29][39]. - The performance of domestic demand-driven stocks has outpaced overseas demand-driven sectors during the recovery from the US tariff shock, with software, media, and food sectors leading the market [77].