Some investment themes in Japan that I'm interested in as we start 2026:

1.Topix 'survivors'

The TOPIX is going to gradually tighten it's inclusion criteria from Oct 2026 one of which is the float adjusted market cap - means constituents at the 'threshold' are likely going to try and make improvements to their valuation to stay on. Which should be beneficial for shareholders. The fun is that everyone near that threshold is going to do that so the theshold becomes even higher! This means more mcap increase/shareholder value over time. I think this will create a catalyst rich pool to look for ideas.

2. Inflation beneficiaries

One thing that's becoming more pronounced is the impact of inflation on Japanese society. More and more services and goods are gradually increasing in prices. I expect there to be tailwinds in those that can either benefit from pricing power or those that can be a sustainble 'lowest cost provider'. This should also include 2nd hand reuse businesses which is starting to see increased demand from consumers, I wrote about an idea on this and have a decent position for this play.

Having one of the 2 qualities (pricing power or low cost) generally implies some kind of advantage and ticks the 'quality' mark for me.

3. Chemicals

One of the 'worst' performers last year was Chemicals. Although the sector return was positive.

This is an industry I like and have found several potential ideas that frankly look quite cheap, despite some of them exposed to huge secular tailwinds like Semi's and AI/Data centers. Beyond that to I believe there's robust demand with generally global presence not reliant on just the domestic economy.

These also tend to be critical suppliers so are in a great competitive position.

4. Industry Consolidation

As a continuation of last year I further expect industry consolidation across different industries - especially those that are labour intensive - to achieve further scale efficiencies. This also as a general trend due to the prevailing succession issues. I am amazed at how 'normalised' the term M&A has become and how often this gets mentioned on corporate IR slides. I remember even just 5 years ago there was a huge stigma around it!

Here i'm looking at focused consolidators in a particular space or a private equity style business.

So far I've written about the maintenance industry that I feel is also ripe for consolidation.

5. TSE Growth reform

Although this is a multiyear theme which stretches out to 2030, the TSE Growth section is also starting to go through a reform and making listing requirements more stringent. Before it was getting to a 4bn mcap in 10 years but this will change to 10bn in mcap in 5 years. This is going to drive companies to enhance shareholder value and otherwise will have no choice but to re-list on a smaller exchange, do an MBO or get acquired. Although there will be a grace period, which is a let down the direction of change is clear and further reforms could come.

The growth index sucks as a whole because most of them shouldn't have listed in the first place and/or listed for the wrong reasons, but I think this will create urgency among some constituents to increase their mcap - granted the business is of some quality I'm quite interested in that.

6. Digitalisation

Again a continuation of previous years but I am still very bullish on digitalisation. We still use paper and fax too much.

There is a prevailing fear of AI disrupting B2B software/SaaS but I think the question is more about figuring out the winners, the losers and those that are insulated.

I think the winners are those that either embrace AI in their operations to the extent that this improves it drastically, otherwise have an extensive customer base to which they can sell such solutions to and/or provide an effective AI layer on existing solutions.

At least anecdotally I hear that corporates have been test running AI for their businesses but that's where it stops, a test case, and it's been hard to have practical solutions they can run at scale. Most CEOs don't have a clue and don't have the engineers in-house to implement it anyways. Thus most will still have to be heavily reliant on external providers i.e. usually the ones that are already servicing them with some kind of solution.

I also heard that the issue with building solutions by vibe coding is that this created problems with accountability, security and the difficulty to audit.

But maybe I'm biased here...

I especially like the Enterprise segment. Specifically in Japan - theres so much redtape that it's not about whether AI can build solutions fast enough, it's about whether you can build a solution that meets the massive checklist these customers have. For that you also need personnel for handholding clients and enough cash to burn to survive long sales cycles. As you know I've written about a few of these too lol.

7. "Made in Japan"

Slightly political but I think with escalating tensions with China we might start to see increased imperatives for government to encourage use of 'home grown' products, especially with things regarding security where Made in China product may be 'seen' as too much of a risk. This doesn't have to be factually true but the fear along can drive this among consumers/businesses. Japan has some incredible manufacturers and 'hard-tech' companies and many of them niche leaders. I think we may increasingly see interest in these. Not only from domestic demand but political allies of Japan. We've already seen Anduril do this with their 100% Made in Japan Kizuna Drone - and I think this could be the spark for more to come.

By the way even for digitalisation, the government is already concerned that we're way too reliant on US soutions (Calling it a digital deficit) and are encouraging more 'home grown' solutions.

Another related end market here is defense. This can be another 'theme' by itself.