Summary of Key Points from the Conference Call Industry and Company Overview - **Industry**: Japanese Equities - **Company**: J.P. Morgan Securities Japan Co., Ltd. Core Insights and Arguments 1. **Interest Rates and Market Dynamics**: There are signs of a pause in the rapid rise of long-term interest rates since mid-November, with yen depreciation also slowing. This is attributed to fiscal concerns and speculation about the Bank of Japan (BOJ) raising the neutral rate [1][16][17]. 2. **Equity Performance**: Despite rising long-term interest rates, Japanese equities have outperformed US and European equities since November, indicating resilience in the market [1][16][20]. 3. **Fiscal Policy Under Takaichi Administration**: The Takaichi administration is focusing on maintaining market confidence through responsible fiscal policies, including the withdrawal of the single-year primary balance target and potential income tax increases to fund defense spending [1][16][19]. 4. **Future Interest Rate Projections**: The fixed income team forecasts a 10-year Japanese Government Bond (JGB) yield of 1.9% by the end of 2026, suggesting a stabilization of rates if the BOJ adjusts its stance on the neutral rate [1][16]. 5. **Sector Performance**: Historically, during periods of rising interest rates, sectors such as banks and real estate have performed well, while sectors like pharmaceuticals and IT services have lagged [20][21]. Additional Important Content 1. **Market Reactions to Fiscal Policy**: The market may react negatively to superficial expansions in budget size, emphasizing the importance of genuine fiscal responsibility in the upcoming FY2026 budget [17][19]. 2. **AI Trade Impact**: The AI trade in the US is influencing stock selection in Japan, with concerns about overinvestment in AI-related stocks affecting volatility [35][36]. 3. **Sector Rotation**: Since mid-November, there has been a notable shift in sector performance, with automobiles rebounding strongly while electric equipment and precision equipment underperformed [47][48]. 4. **Investment Outlook**: The J.P. Morgan house view anticipates that global AI expansion will drive market growth, particularly in sectors like semiconductors and IT services, while also expecting a recovery in consumer-related sectors [48][49]. Conclusion The Japanese equity market is currently navigating a complex landscape of rising interest rates and fiscal policy changes under the Takaichi administration. While there are concerns about overinvestment in AI, the overall outlook remains cautiously optimistic, with specific sectors expected to perform well in the near future.