Jefferies sees Japan value stocks gain as momentum trades reverse

Investing.com -- Jefferies reported that Japan's stock market saw a sharp reversal of momentum trades in July 2026, with high-beta stocks declining 17.5% while value stocks gained 8.4%.

The investment bank noted that the selloff affected crowded AI and momentum positions. The firm's high-beta momentum basket fell 17.5% during the month, while its value laggards basket rose 8.4%. Market leadership shifted toward value, yield, and low-volatility stocks.

Foreign investors purchased a net ¥0.9 trillion in Japanese stocks through the week ending July 24, indicating the weakness was not caused by foreign capital outflows.

Approximately 28% of companies reported earnings, with 67% beating sales expectations, 70% surpassing operating profit estimates, and 68% exceeding earnings forecasts. Aggregate earnings beat expectations by 21%. Consumer services, materials, and retail sectors led operating profit beats, while software and capital goods lagged.

Companies in the Topix index announced ¥1.8 trillion in buybacks, exceeding last year's pace. Stocks that beat earnings expectations did not outperform, while those missing estimates declined.

Japan long-only funds reduced positions in semiconductor companies including Kioxia, Advantest, Tokyo Electron, and Renesas. They also trimmed holdings in technology hardware firms Murata, Ibiden, TDK, and Keyence. Funds increased exposure to capital goods companies such as Hitachi, Mitsubishi, Mitsui, MHI, and Marubeni, along with financial institutions including Tokio Marine, MUFG, SMFG, Resona, and Japan Post Bank.

Japan and the US conducted coordinated yen-buying intervention after USD/JPY approached 164. Jefferies expects the yen to remain range-bound between 155-165.

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