Japan
Japan: regime score, economic regime, capital flows, currency outlook and FX-adjusted returns, from the latest weekly snapshot.
Regime scorecard
Neutral regime, score +27 (Bullish tilt); expanding economy; capital flows inflows increasing; geopolitical risk moderate. Strongest: capital flows (+60), market performance (+43). Weakest: valuation & stability (-7).
| Factor | Weight | Score |
|---|---|---|
| Economic momentum | 30% | +13 |
| Capital flows & liquidity | 25% | +60 |
| Market performance | 20% | +43 |
| Geopolitical conditions | 15% | 0 |
| Valuation & stability | 10% | −7 |
IMF real GDP growth: 0.7% (2026), 0.7% (2027). Inflation 2.1%, policy rate 1.25%. Relative strength vs MSCI ACWI over 3 months: +1.2 pp. Currency (JPY) score +38, 1-year outlook ↑.
Weekly brief: Japan tops the scorecard on strong inflows and a firming yen ahead of the BoJ
Regime: Neutral (score +27, Bullish tilt), Expanding economy – strong foreign inflows and a firming yen put Japan at the top of the scorecard, though valuations are no longer cheap.
What changed
This is the first weekly reading for Japan, so there is no prior score or regime to compare against. It ranks first of 13 regions.
Economy and markets
The IMF nudged Japan’s 2026 growth forecast up to 0.7%, with 0.7% also expected in 2027. October’s flash composite PMI held at 52.3, a 19th month of expansion, as services improved while manufacturing slowed to a seven-month low; job creation hit a 14-month low. Inflation is 2.1%, the BoJ policy rate is 1.25% and the 10-year JGB yield is about 2.8%. Japanese equities are up 15.5% year to date, despite a 3.8% fall over the past month, and have beaten MSCI ACWI by 1.2 points over three months and 3.6 over six. Valuation is the weakest factor (-7): MSCI Japan trades on 15.3x forward earnings, with AI hardware flagged as elevated.
Capital flows and rotation
Capital flows are the strongest factor (+60), with inflows increasing and three-month ETF flows of about 5.4% of fund size. Japan is at the "potential opportunity" stage but has moved into the Weakening quadrant, so momentum is worth monitoring. Foreigners bought about JPY3.55tn of Japanese stocks in the week to 10 October, then sold a small JPY66.5bn the following week, while buying long-term JGBs for a third straight week.
Currency
The yen scores +38, the highest among G10 currencies. Its 1-year view points higher and its 3-5-year view is higher to uncertain. MUFG sees the BoJ at 2.00% by mid-2027 and USDJPY at 149. If the yen strengthens as forecast, USD-, EUR- and GBP-based investors would see their Japanese returns enhanced. Loose fiscal policy and a wide rate gap with the US are the risks.
Risks and what to watch
Geopolitical risk is Moderate. The main pressures are higher oil from the Middle East conflict (Japan is an energy importer), bond-yield volatility (the 10-year JGB is up about 80bp this year) and spillover from any AI and semiconductor sell-off. Dates: FOMC on 27-28 October, the BoJ meeting on 30 October, the final manufacturing PMI on 2 November and the services PMI on 5 November.
Educational information, not investment advice. Scores are model outputs, not forecasts.
Source: Sonsero Regions weekly snapshot 2026-10-25 (market data from TradingView; IMF, central bank and fund-flow research). Scores and regimes are rules-based descriptions of conditions, not investment advice.