Stand30.06.2025
The Fund was up 5.66% (I JPY share class; 5.59% for the D JPY share class) in May compared to a 5.10% increase in the TOPIX a nd a rise of 5.36% in the Russell/Nomura Large Cap Value Index (all figures in yen, total return). May has been a better month for the equity market and portfolio, amidst a plethora of events. The month saw the conclusion of corporate results season, which was marked by global macro uncertainties leading to a wide range of forecasts for the year ah ead. Expectations for FX rates and tariffs varied widely, but the overall mood was conservative in nature. Despite this, improveme nts in corporate governance were evident with shareholders continuing to benefit. Announcements of stock buybacks in April amounted to 26bn, the highest ever and three times the amount a year before. We also saw significant positive developments in parent - subsidiary relationships in large corporates such as the NTT and Toyota groups. dovish Bank of Japan (BoJ) meeting suggested continued hikes of interest rates would be off the table, especially given GDP numbers released later reflected an annualised contraction of 0.7% in real terms. However, inflation is still above the 2% long term target, and food price inflation is particularly unpopular politically. Surging rice prices have been well covered by the loc al media, with a shortage necessitating the release of stockpiles. A gaffe by the food and agriculture minister in charge led to his swift replacement by Shinjiro Koizumi, a young and popular politician who happens to be the son of a previous prime minister and is seen by many as a contender for party leadership in the future. Focus is shifting to the upper house election in July, when half of the seats will be put to the vote. The Liberal Democratic Party is widely expected to take further losses while Prime Minister Ishibas popularity continues to dwindle. The government is m aking efforts to stem the tide with a $6.3bn spending package to support households and businesses adversely affected by tariffs an d inflation. There are also calls from junior political parties to cut or suspend food consumption tax which, while political ly popular, would not help government finances. Concerns over Japans fiscal position contributed to large moves in the government bond market, with yields in the long end o f the curve blowing out to levels not seen in many years. The ministry of finance attempted to handle the situation by conducting a survey of participants to gauge future demand for issuance in JGBs, hinting that they would have the freedom to adjust their plans. Around the end of the month, the legality of Mr Trumps tariff imposition using emergency provisions came into question. This caused a brief rally in Japanese exporters, but the mood quickly reverted on the final day of May after a federal appeals cou rt temporarily paused the ruling allowing tariffs to continue. Despite all the uncertainty the equity market performed well and in dollar terms TOPIX reached a 35 year high. However, the momentum factor in highly liquid market favourites has continued to drive index performance. Longer term, this could create opportunities in undervalued companies, many of them blue chips, where sentiment has been hurt.