Japanese prime minister Shigeru Ishiba could have been forgiven for a degree of trepidation before his recent visit to the White House. 

Tariffs would have a major impact on Japan given how reliant its economy is on exports.

Therefore, beyond a mild warning from president Donald Trump that Japan could face the T word if it didn’t get its trade deficit with America down to zero, Ishiba will have left Washington a relieved man.

This begs the question of what else is holding back Japanese stocks. Since hitting a new all-time high for the first time since the early 1980s last year, the flagship Nikkei 225 index has basically traded sideways, bar a brief period in late July and early August when concern over the yen carry trade saw a frenzied but ultimately brief sell-off.

Against this backdrop, the optimism of value-oriented investment trust AVI Global (AGT) and manager Joe Bauernfreund is particularly striking.

He observes: ‘Over the last eight years, the weight of evidence that Japan is changing has grown. We previously described 2023 as a seminal year in which global investors, spurred on by the efforts of the Tokyo Stock Exchange and its attempts to address the issues of companies trading below book value, woke up and smelt the coffee. Japanese equities have gained global relevance once again.

‘As we have learnt over time, the path to progress can be frustratingly slow at times, and it is not always linear with steps back along the way. With that said, as we survey the landscape in 2025, we are as optimistic as we have ever been.’

In terms of broad catalysts for equities in Japan, Bauernfreund notes brewing interest among private equity, citing the battle between KKR and Bain for Fuji Soft (9749:TYO) as an example.

He adds: ‘Importantly, and in many ways connected to this, we are seeing management teams become increasingly active in their attempts to boost and unlock corporate value. As active engaged owners, these are two attractive forces to have moving in the right direction.’

There is an interesting snippet on the early knockings of the European earnings season from analysts at Bank of America, who note stocks missing EPS (earnings per share) estimates have faced heavy punishment, with a median one-day underperformance of 2.6%, the sharpest since they started tracking the data 13 years ago, while those beating estimates have recorded outperformance of 1.7%, the second strongest level on record.

This paints a picture of a nervous market, of a mind to punish any signs of weakness but also very grateful for signs a business is thriving despite the uncertain backdrop.

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