Japanese equities are set to attract renewed investor inflows following the weekend's lower house election, according to Bank of America analysts. Prime Minister Sanae Takaichi's landslide victory potentially grants her party a supermajority, removing a key short-term overhang for markets. The political clarity is expected to prompt portfolio flows to normalize as political risk premiums ease.

BofA analysts noted that the election acted as a temporary deterrent to risk appetite, causing investors to delay allocations despite supportive fundamentals. The Nikkei 225 index is already trading up some 5% in 2026 after bumper gains in the prior year, as investors cheered the prospect of looser fiscal policy under Takaichi. Her pledges to ramp up fiscal spending and provide more tax breaks for Japanese consumers have been broadly welcomed by local investors.

Japanese stocks continue to benefit from structural drivers that remain intact regardless of the election outcome, including ongoing corporate governance reforms, higher shareholder returns, and improved capital discipline. These factors have supported earnings quality and valuation re-ratings over the past year. While near-term market catalysts like yen weakness and strong foreign inflows are fading, BofA argues this does not undermine the medium-term equity story.

The market is shifting from momentum-driven gains to fundamentals-driven performance, with domestic institutional investors and foreign funds expected to increase exposure once political uncertainty clears. Large-cap exporters, financials, and companies benefiting from governance reforms are likely to see particular interest as the political fog lifts.