Welcome to Thoughts on the Market.
I'm Shio Nakazawa, Japan equity strategist at Morgan Stanley MUFG Securities.
Today, how Japan's Takaichi administration could define Japan's stock market for years to come.
It's Tuesday, March 17th at 3 p.m. in Tokyo.
Sanae Takaichi became Japan's first female prime minister on October 21, 2025.
She leads a conservative administration that emphasizes defense spending and economic resilience.
When Takaichi took office in February, this signaled the start of a structural pivot in Japan's economy, and markets have responded quickly.
Over the past several months, stocks with high exposure to the administration's 17 strategic domains have outperformed topics by 15 percentage points.
That kind of divergence suggests something bigger than a cyclical rebound.
Capital is positioned to a structural shift.
First, There's a Japanese government's increased emphasis on economic security and supply chain resilience.
This reflects a philosophical shift.
For years, efficiency ruled, just-in-time supply chains and global optimization.
The pandemic and reorientation towards a multipolar world changed that workflow.
Now the emphasis is on redundancy and autonomy.
And this has implications for defense and space, advanced materials and critical minerals, shipbuilding and cybersecurity.
The second pillar of Japan's structural market shift is AI and compute revolution.
Yes, some investors worry about overinvestment in AI, but we believe in possibility of nonlinear returns as AI breakthroughs occur.
And keep in mind, AI isn't just software.
It requires data center cooling, communication networks, expanded power grids and critical minerals.
This is a full industrial stack upgrade.
Looking further out, the global humanoid robotics market could reach US75 trillion annually by 2050, according to our global robotics team estimates.
That's roughly three times the combined 2024 revenue of the world's top 20 automakers at about US25 trillion.
The third force reshaping Japan's market is infrastructure.
The 2026 budget slated towards national resilience initiatives exceeds 5 trillion yen.
With aging infrastructure and intensifying natural disasters.
Resilience spending relates directly to economic security.
Ports, logistics, and communication systems are increasingly becoming strategic assets.
Our work suggests a long-term construction cycle is entering an expansion phase as barbed-wire buildings from the late 1980s reach replacement timing.
That points to durable demand rather than a temporary spike.
With all this said, that's also important is how stock market leadership spreads.
It tends to move from upstream to downstream, from materials and power infrastructure to AI, to defense and communications and eventually, to applications like drug discovery, quantum technologies, cybersecurity and content.
Right now, the strongest three-month returns are in advanced materials and critical minerals and in next-gen power and grid infrastructure.
Meanwhile, areas like server security and content have lagged, but remain tightly connected in the network.
If leadership broadens, the linkages matter.
The real constraint isn't political opposition, it's market itself.
If investors decide this is a temporary stimulus rather than sustainable earnings growth, variations might adjust.
But we do believe that Japan's equity market isn't simply lulling.
It is reorganizing around economic security, AI infrastructure, and national resilience.
Thanks for listening.
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