Japan Capital Markets 2Q26

Japan’s economy remained resilient in Q2 2026, supported by AI-driven investment, semiconductor expansion, and strong manufacturing activity. Real GDP grew 1.8%, while unemployment stayed low at 2.5%, reflecting a tight labor market and sustained wage growth. Despite a Bank of Japan rate hike to 1.0%, the yen weakened and bond yields rose, signaling expectations of further policy normalization. Japanese equities reached record highs, led by AI, semiconductor, and capital goods sectors, supported by governance reforms and foreign inflows. Looking ahead, higher interest rates are expected to strengthen bank profitability, improve ROE, and support further valuation expansion.