Japanese equities have become an attractive investment option as global market leadership undergoes a significant reshuffle, says Bernard Chua, senior client portfolio manager at American Century Investments.

“With the previously dominant "Magnificent 7" and broader US exceptionalism lagging this year, investors are increasingly looking beyond traditional outperformers for growth potential, and after decades of underperformance relative to global peers, Japan is experiencing a meaningful inflection point," Mr Chua said.

"Structural reforms, technological modernisation and evolving corporate governance are creating compelling opportunities in a market that many investors had overlooked since its deflationary spiral began in the 1990s."

Mr Chua pointed to three key drivers behind Japan's resurgence.

The country is undergoing rapid digitisation as companies invest heavily in IT infrastructure to offset rising labour costs and improve productivity.

Additionally, Japanese industrial firms, particularly in sectors like advanced machinery, energy infrastructure, and AI-driven power demand, are well positioned to benefit from global structural trends. Companies such as Mitsubishi and Hitachi stand to gain from increasing worldwide investment in electricity generation and next-generation technology.

Finally, another critical factor is Japan's shifting corporate culture, where companies are increasingly prioritising shareholder-friendly policies.

"We're seeing accelerated stock buybacks, higher dividend payouts, and improved board diversity, all of which signal stronger corporate governance and a more attractive investment landscape," Mr Chua said.

Mr Chaus said American Century Investments has been increasing its exposure to Japanese equities after years of limited allocation.

"Japan's economic trajectory is at a turning point," Mr Chua said.

"With improving fundamentals, policy support, and corporate reforms, we believe the market offers a compelling risk-reward balance for investors seeking diversification beyond traditional US and tech-heavy exposures."