US Capital Flows Return to Japanese Equities as Geopolitical Tensions Ease

US-based investors are pivoting back toward Japanese equity markets, signaling a recovery in confidence following a period of volatility triggered by geopolitical tensions in the Middle East. This shift suggests that the initial 'war shock' is dissipating, allowing global capital to return to the region. According to Bruce Kirk, chief Japan equity strategist at Goldman Sachs Japan Co., this resurgence in capital inflows is particularly evident in the Nikkei 225 Stock Average. The tech-heavy index has begun to diverge from the broader Topix, reflecting a specific appetite for Japan's technology sector among returning US buyers. A critical factor in this shift is the current state of the Japanese yen. With the currency trading near 160 per dollar, analysts suggest that Japanese policymakers are unlikely to tolerate a significant further decline past these levels. This perceived floor for the yen reduces the currency risk for unhedged US investors, making Japanese assets more attractive on a risk-adjusted basis. As geopolitical uncertainty recedes, the return of US liquidity is expected to provide a sustained tailwind for Japanese large-cap equities.