CNBC's "Closing Bell Overtime" discusses Japan's equity market and what investors should know with Kei Okamura, portfolio manager for Japanese equities at Neuberger Berman.

Tokyo

Kei Okamura, portfolio manager for Japanese equities at Neuberger Berman, stated that Japan's economy is showing signs of normalization, with the country exiting decades of deflation and experiencing stabilizing inflation and structural wage growth. Okamura highlighted that Japanese equities remain attractive due to strong fundamentals and discounted valuations compared to other major markets, despite the Bank of Japan's recent interest rate hike.

He also noted the importance of monitoring currency movements, particularly the yen, and emphasized investing in companies with resilient business models that can withstand currency volatility. Okamura pointed to government fiscal initiatives, including increased defense spending and strategic investments in sectors like shipbuilding and semiconductors, as key drivers for Japan's growth outlook.

Japan's economy is normalizing, says Neuberger's Okamura

Can the positive momentum continue? Joining us now is Kei Akamura. He is Neuberger Berman's portfolio manager for Japanese equities. And Kei, it's great to have you on the show. Given the fact that the Bank of Japan has been hiking, can the equity market continue to power higher? Hi, thanks for having me on the show, Maureen. So let me break that down to a couple of parts. First of all, we do think that the market can go higher and that's on the back of the fundamentals and the valuation. So on the fundamental side, we have the Japanese economy exiting the last decades of deflation. Inflation is stabilizing. We're starting to see structural gains in wage growth. That's a positive factor. And then on the valuation side, as you mentioned, the Japanese equity market, you know, gained around 26, 25% or so this year to date. But then, you know, when you look at the valuation, it's about mid-teens PE, which is a much further discount compared to say the S&P or other European equities. So we do think that Japanese equities remain quite attractive. On the other hand, what the Bank of Japan did last week, it's kind of reflective of this. We are, the economy is normalizing. And I think it's for that reason that the Bank of Japan decided to hike, you know, interest rates by 25 basis points, albeit it's still at 0.75%, which is still very low by international standards. I realize you're focused on the equity market, but the yen had weakened dramatically against the US dollar after that rate hike and stabilized today. And certainly you've had officials who have come out and basically said they're keeping an eye on this and that helped to stabilize things. So how closely are you watching currencies given the ripple effects of that to other asset classes, including stocks? Yeah, look, I keep a very close eye on currency markets just simply because, you know, it has a big impact in terms of the imported cost of inflation. Also, you know, I just came back from a break from overseas and it was pretty pricey, especially being paid in Japanese yen. But that being said, when we're investing in Japanese equities in the long term, I think it is important that we are invested in companies that have battle-hardened balance sheets and business models that can weather these short-term volatilities in the yen. So if you take a look at our portfolio, we own companies like Toyota, which is a great company that has localized production in the end markets, such as the one where you're at in the US, and that's important because it basically removes the cost implications between the top line and the cost base. And that's usually where the biggest sort of volatility comes from the currency mismatch. So I think that's an important factor to take into consideration, be invested in these companies that have, you know, gone through various types of cycles and currency volatilities. Those are the ones that will continue to win over the mid to long term. You know, it's interesting because we've seen fiscal packages help propel markets in other parts of the world. I think about Germany, where defense spending and infrastructure are key parts of those fiscal packages. You're hearing very similar commentary around things like defense spending from Japan's prime minister. Is that part of the bull case for Japan going into 2026? Yeah, absolutely. You know, just like other markets, the defense industry is booming at the moment, shipbuilding, semiconductors, like, you know, the previous guest was saying. I think all of these are very, very important themes and they're part of the core sort of strategic investment package that the government has come to the market with, especially since this newly elected prime minister, you know, came to the front scenes in October of this year. What is important is that in the last sort of several years, if we track back, we've been seeing Japanese equities continue to do quite well and that has to do with the balance sheet reforms and the capital efficiency gains that have finally come through after many, many decades. But now what's even more interesting is what you just alluded to, which is that the government is trying to come up with a growth story. And that's an actually important factor, especially as equity investors, we need that aspect to be more forward-looking investors over the mid to long term.

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