Japan: How to invest in a context of economic resilience and structural transformation
30 MAR, 2026
By Simon Morton-Grant, Fund Manager of CT (Lux) Japan Equities, Columbia Threadneedle Investments
The global macroeconomic environment continues to be dominated by geopolitical tensions and uncertainty in energy markets, with particular focus on dynamics in the Strait of Hormuz, a crucial hub for global oil trade. In this context, Japan stands out for its relative resilience, despite being structurally dependent on energy imports from the Middle East. Despite this exposure, the direct impact of current tensions appears, at present, limited. Japanese imports from Iran are modest, and the country benefits from a significant level of oil reserves, estimated at around 245 days, which helps mitigate short-term risks. At the same time, according to estimates from the Cabinet Office’s macroeconomic model, a potential recession would require oil prices to remain steadily around $175 per barrel—well above current levels.
Nevertheless, monitoring developments in the Strait of Hormuz remains crucial, where Iran’s restrictions on maritime traffic are generating volatility in oil prices and uncertainty among investors. In this context, China’s role—as the main importer of crude along this route—could prove decisive, both in terms of economic impact and as a potential diplomatic actor. From an equity market perspective, periods of heightened risk aversion have historically led to valuation dislocations, often independent of the fundamentals of individual companies. This phenomenon can create opportunities for a disciplined, long-term investment approach capable of capturing market inefficiencies. In this context, we maintain a constructive view on certain sectors, including energy, while remaining focused on rigorous analysis of valuations and fundamentals.
Looking beyond the short term, the Japanese equity market today presents particularly interesting structural characteristics. A key driver is corporate governance reforms, which are progressively transforming corporate behavior. Japanese companies have increased investment in research and development, sustainability, and human capital, while shareholder returns—through dividends and share buybacks—have grown significantly, more than doubling over the past decade. At the same time, there is a gradual reduction in cross-shareholdings, historically widespread in the Japanese corporate system and often ineffective in terms of capital allocation. This process is contributing to improved overall profitability and, in particular, return on equity (ROE), making companies more efficient and focused on creating shareholder value.
In this context, stock selection takes on a central role. We believe the most attractive opportunities are in high-quality companies with durable competitive advantages and the ability to generate sustainable cash flows over time. In this sense, a high-conviction approach, spanning the full spectrum of market capitalizations, appears most effective for capturing the potential of the Japanese market. This philosophy is reflected in our CT (Lux) Japan Equities strategy, which adopts an investment process based on in-depth fundamental analysis, supported by integrated research and an active portfolio management approach. The use of benchmark tools, macroeconomic analysis, and attention to ESG factors help build a portfolio consistent with a long-term vision, focused on quality and sustainable alpha generation.
In a still uncertain global context, Japan therefore emerges as a market capable of combining short-term resilience with long-term structural transformation. For investors, this translates into a set of opportunities that require selectivity, discipline, and deep knowledge of fundamentals—all elements that make active management particularly relevant for fully capturing the potential of this market.
