Japanese equities are showing signs of a late-2023-style rally, driven by a confluence of factors including a U.S. Treasury move to double repurchase limits for longer-term bonds and shifting macro dynamics. The Bank of America on August 20, 2026, highlighted that the U.S. Treasury will raise its minimum repurchase limit for longer-term public bonds to $4 billion per operation starting September 9, up from the previous $2 billion, covering bonds with maturities of 10 to 20 years and 20 to 30 years. The adjustment aims to address investor concerns over the recent surge in long-term yields, though Bank of America cautioned that without broader economic shifts, yields may remain elevated.
The current environment contrasts with late 2023, when falling U.S. long-term yields were supported by weakening economic data, slowing inflation, and expectations of a Fed pivot. Today, Japan’s stock market is advancing despite a weak yen, which has remained under pressure despite coordinated currency interventions. Geopolitical risks in the Middle East have replaced the oil price declines seen in late 2023, while a potential recovery in the industrial sector is lifting Japanese corporate profits and interest rates.
Bank of America’s strategy note suggests that higher U.S. repurchase limits could curb runaway long-term yields, but the bank does not anticipate a repeat of the rate-cut-driven rally from late 2023. Instead, the market is expected to transition from momentum-driven performance to selective stock-picking. The bank recommends focusing on areas such as AI-related stocks with strong fundamentals and valuations, IT service companies, gaming, and intellectual property firms that underperformed during the AI rally but delivered robust first-quarter results.
Domestic demand-oriented stocks could benefit if the yen stabilizes, while small- and mid-cap growth stocks may recover if currency depreciation halts. Value stocks are projected to maintain an advantage as interest rates continue to rise, according to the report.
