Two of the best trades for the year are in Japan: Goldman Sachs Asset Management

0:00 But, in our mind, the Bank of Japan is behind the curve,

0:04 and the yen is actually doing the heavy lifting for now,

0:07 and until the BOJ comes in and, you know,

0:10 similar to the comments that you were alluding to from Vasant,

0:13 starts to do to make those changes,

0:15 you're going to see continued pressure there.

0:18 You know, but holistically, you know, what's been happening,

0:21 you know, in terms of flows in Japan,

0:23 it's really quite extraordinary, and because you can now get,

0:27 you know, 240 at home versus abroad,

0:30 there's been a lot of repatriation of capital,

0:32 and especially from insurance companies outside of what

0:35 have been traditional places to park money,

0:38 which, you know, US investment grade credit, back into you know, home.

0:43 So, it's there's been a really interesting shift,

0:46 and obviously it makes sense from the fixed income perspective,

0:50 and then when we talk about equities and how we're thinking about this, yeah,

0:53 I think two of the best, you know,

0:56 this year and next year trades actually live in Japan,

1:00 and I mentioned earlier the AI trade,

1:02 you know, and owning the whole capital stack

1:05 as it relates to that being in Asia,

1:07 but also you know, the the regulatory reform, what's happening with, you know,

1:12 corporate profits and share buybacks, and and investments, you know,

1:17 we see that as being a consistent investable theme within Japan,

1:21 and we're really excited about the region.

1:24 So, that's the long-term story for Japan that you see,

1:27 but you say near-term energy drag is going to mean

1:31 that it's too early to add to Japan aggressively right now.

1:36 But, looking at the Nikkei 225 at a record high level, I mean,

1:40 it doesn't really feel like the market cares

1:42 about the energy drag that you're thinking about.

1:46 Do you think that it will eventually show up with a bit of a lag,

1:49 and how much of a pain will there be for market's perspective?

1:54 Yeah, I I mean, if you, you know, look back about a month or two ago,

1:59 the market really did care and was pricing that in.

2:02 Uh but we've seen a tremendous amount of momentum towards,

2:05 you know, covering shorts and and repositioning.

2:08 And I think, you know, in the near term, you see a this broader recovery,

2:12 but we're over time as it relates

2:14 to earnings and being more focused on, you know,

2:16 the micro rather than, you know, the macro or the big capital flows.

2:20 Uh we'll see some distinction in the markets and in in single names,

2:24 but obviously the yen um and the valuation of the yen

2:27 is also helpful for some some of the earnings pictures.

2:30 But, you know, I think one of the reasons that market has done so well is

2:34 because it is a diversifier away from other

2:36 markets and it's cyclically oriented towards uh differentiated sectors.

2:40 And so, you've even seen, you know, Europe come back.

2:43 Europe is struggling.

2:45 Um you know, we see that to be cheap,

2:47 but cheaper for uh you know, pretty obvious reasons.

2:50 So, you know, the the comment for us is more about, you know, being thoughtful,

2:54 not chasing everybody back in and and really

2:56 knowing and picking our spots in these markets

2:59 and these regions because we do think it's going to be um you know,

3:02 really over time you're going to see a distinction amongst the names.