The head of Sumitomo Mitsui Trust Asset Management Company (SMTAM) has an encouraging New Year’s message for investors in the Tokyo stock market, Asia’s biggest bourse and the third largest in the world.
Takahiro Kobayashi predicts Japanese corporate earnings will regain double-digit growth in 2026 and that governance reform will continue, along with continued flow of domestic savings into investments.
The benchmark Nikkei 225 average recently broke above 50,000 to a new record high, reflecting international investor optimism about prospects for the world’s fourth largest economy, as well as some shift out of US and Chinese equities.
In an interview with Asia Asset Magnement, Kobayashi, president and chief executive officer of Japan’s fourth largest asset manager with some US$750 billion of assets under management, listed several factors for the index’s gain.
“The primary drivers are expanding corporate profits and improved corporate governance. In recent months, expectations for the administration [of Sanei Takaichi, the recently elected prime minister] have also boosted share prices as she prioritises economic growth strategies,” he says.
Although he acknowledged that the sharp gains since last April has “created a sense of overheating”, he argued that “we have seen significant profit-taking, coinciding with a correction in US tech stocks”.
“We anticipate that corporate earnings [in Japan] will return to double-digit growth next fiscal year [and] there remains upside potential in line with earnings expansion.”
From savings to investments
He expects the significant flow of Japanese household assets from savings into investments seen in recent years to continue.
“Originally, the shift from savings to investment was discussed in relation to asset building among younger [people],” he says. “Now, faced with persistent inflation, Japanese people of all ages are increasingly viewing investment as a means of protecting wealth. We expect the shift from savings to investment is likely to progress steadily.”
Kobayashi pointed out that the Takaichi administration has explicitly stated it will continue the Asset Management Nation policy initiated by former Prime Minister Fumio Kishida.
One of the pillars of the policy was the launch in 2024 of the new Nippon Individual Savings Account or NISA, a tax-advantaged investment scheme for individuals that exempts capital gains from taxation. As of June 2025, the scheme had attracted around 63 trillion yen ($406 billion).
“Participants across diverse age groups are leveraging this framework, driving a steady and sustained transition from savings to investment. The new administration is expected to further expand new NISA measures,” Kobayashi says.
Tech stocks, interest rates
He also discussed whether Wall Street is in the late stages of a tech stock bubble, especially with regards to the artificial intelligence boom.
“Regarding high-tech stocks, concerns are emerging in the market about whether the massive investments in AI-related ventures, such as those in data centres, will truly yield profits,” he says. “The answer to this will only become clear several years from now. At present, companies like Google and Apple are making investments that align with their cash flow. While some investments within the sector are relying on debt, it cannot be definitively said that the overarching AI investment landscape constitutes a bubble.”
“US corporate earnings remain robust, posting double-digit growth. US stock valuations are indeed high, which could lead to persistently elevated volatility for the time being. However, in the longer term, US equities are likely to continue driving global stock markets,” he adds.
Meanwhile, he observed that the underlying economic trend in Europe remains weak. “While measures such as Germany’s increased defence spending are anticipated to provide some fiscal support, political conditions across the region are unstable. The outlook remains highly uncertain, and European equities appear likely to underperform relative to other developed markets.”
He also says it’s “challenging” to be upbeat about Chinese stocks, noting China continues to experience slower economic growth amid its property market downturn, and that government stimulus remains inadequate.
“Chinese stocks delivered solid performance in 2025; however, we view this as a temporary rebound following several years of sluggish market conditions, so it is challenging to maintain an optimistic outlook on the future of Chinese equities,” he says. “However, AI-related stocks, supported by national policy, appear poised for medium-term growth and the US-China trade agreement is positive in terms of reducing risk factors.”
On monetary policy, Kobayashi says the US Federal Reserve is likely to continue reducing interest rates as employment slows.
He expects the European Central Bank to hold interest rates steady, but pointed out that European borrowing costs are prone to rising due to concerns about increased bond issuance tied to fiscal stimulus measures.
Closer home, the Bank of Japan is likely to continue hiking interest rates. “Interest rates [generally] are seen trending upwards, and we believe that high volatility will continue over the medium to long term,” he says.
Private assets
Kobayashi also shared his views about private markets.
Consulting firm PwC has projected that assets in the global fund management industry is on track to increase from some $140 trillion at present to $200 trillion by 2030, with the private market poised to account for more than half the growth.
Kobayashi noted strong demand for private investments from sovereign wealth funds and other global asset owners. “This trend is likely to continue as they seek diversification and risk mitigation,” he says.
While the core of SMTAM’s current investment portfolio consists of listed equities and bonds, he says the firm established a dedicated team several years ago to invest in unlisted Japanese equities, “working towards realising crossover investment strategies that bridge listed and unlisted assets”.
He says the firm aims to leverage the resources of the Sumitomo Mitsui Trust Group’s affiliated companies to meet evolving investor needs.
“As a group, we possess robust capabilities in private asset investment, with verticals spanning private equity, real estate and infrastructure. We recognise that international investors face significant hurdles when accessing Japanese private assets, and we are committed to developing and delivering solutions that address their portfolio diversification requirements,” he says. “However, looking ahead, the asset management industry faces harsh realities such as declining management fee rates.”
