Compiled: Feb 18, 2026 | Sources: Substack digests, Twitter/X monitoring, Daily Shot, email alerts
Japan is +13.8% YTD, leading all major markets. S&P 500 is flat. This isn't a blip — it's the convergence of a political regime shift, a monetary policy trap, a structural reallocation story, and a US-Japan strategic realignment.
- PM Sanae Takaichi (Abe protege, first female PM) won a historic snap election Feb 8 — LDP secured 316 of 465 seats, largest mandate since 1955
- Immediately announced first tranche of $550B US-Japan investment deal (gas, ports, synthetic diamonds)
- Pledged to fund food tax cuts without new bond issuance — markets gave benefit of the doubt, JGB yields actually fell post-election
- Nikkei rallied 5% to new highs on election night, futures hit 56,500
- Reappointed Feb 18, now focused on budget + Trump trade deal
- Carries implications for defense spending (remilitarization), fiscal expansion, and continued loose monetary bias
Sources: Werner (2/8), Daily Shot (2/9-2/10), twag digests (2/7-2/9)
This is the central tension. Two competing frameworks:
- Yen at 30-year lows trade-weighted; classic crisis symptoms (falling FX, rising yields, weak growth)
- All goods inflation attributable to FX pass-through from imports
- BoJ hiked to 0.75% in Dec '25 (highest since 1995) but it's ineffective — magnitude needed to defend yen would crush the economy
- "Most likely outcome: stuck in undesirable loop of weakening bonds, weakening FX, soft economy, above-target inflation"
- Trade: Long Japanese stocks (export beneficiaries), short yen
- "Tokyo in 2026 is like Berlin in the 1920s. Foreigners pouring in because the currency makes decadence feel like thrift."
- TOPIX confirmed new high after 25-year pause — regime switch confirmed
- Japanese equity market cap (~$8.1T) is "shockingly small" globally
- "Treat Japan like NASDAQ circa 2017. Throttle open. Runway long."
- Nikkei target: 200,000 (currently ~55,000) — "5x is what happens when a thin market meets a regime change"
- Trade: Own broad Japan, hedge yen — "the party is cheap, the bill is in the currency"
- Rising JGB yields = stronger economy + inflation expectations, NOT a sovereign crisis
- Yen carry trade concerns overblown (~¥40T = 0.1% of global liquidity)
- JGB sell-off is bonds-to-equities rotation, not wholesale dumping
- BoJ will eventually have to add liquidity to cap debt servicing costs
- Long path to monetary debasement, but not yet a crisis
| Date | Event |
|---|---|
| Dec 19 | BoJ hiked to 0.75%, 10yr above 2% (highest since 1999) |
| Jan 7 | 30yr yield at highest since MOF began issuing in 1999 |
| Jan 20 | 40yr above 4% for the first time ever; 10yr highest since 1999 |
| Jan 21 | JGB Liquidity Index hit worst level on record; 30yr total return index down 50%+ from peak |
| Jan 23 | BoJ held but removed cautious language — clearer path to more hikes. Nomura expects 3 hikes in 2026 |
| Jan 28 | 40yr auction drew strongest demand since March — easing panic |
| Feb 10 | Takaichi pledged no new issuance for food tax cut — yields declined |
| Feb 18 | "After weeks of fear-mongering, Japanese yields keep falling" |
Key stat: TOPIX dividend yield fell below 10yr JGB yield for first time in decades — massive signal of bonds-to-equities rotation.
- Japanese equities had strongest start to a year since 1990 (Daily Shot, 1/6)
- Foreign investors consistently net buyers of Japanese stocks (Dec through Feb)
- Howell's risk appetite data: Japan consistently +65 to +71 — the highest-conviction DM allocation every single week
- Global rotation from US to Europe/Japan/Asia accelerating (Visser Labs, Capital Flows)
- BoA Hartnett (2/14): Yen & Nikkei price correlation just flipped positive for first time since 2005 — bullish signal that yen strength no longer kills equities
- @dampedspring: EWJ has outperformed local MSCI Japan by roughly the change in USDJPY — ~15.1% USD return vs flat SPY YTD
- Shanaka Perera (2/13): Estimates $1-4T total carry trade, calls it "ticking time bomb"
- Japanese life insurers hold ~$1.5T in foreign bonds, beginning repatriation as domestic yields become competitive
- Self-reinforcing loop risk: repatriation → sell US/EU bonds → strengthen yen → trigger carry unwinds
- USD/JPY 150 flagged as carry unwind trigger (currently ~153)
- BUT: Howell dismisses carry trade at 0.1% of global liquidity; Campbell Ramble says Japanese insurers talking about it at Davos but NOT actually liquidating
- Pinebrook Capital (2/13): DXJ 3-sigma overbought vs SPX — exceeds levels from Liberation Day. Taking profits.
- TOPIX farthest from 150 EMA since 2013 — last time a 20% drop followed (@RodriGo_ethe)
- Trump wants Japan's savings invested in US on equity basis — "fabs, energy, logistics, arms, chips" — not Treasuries
- Hendry: "Reverse Marshall Plan" — 40 years of recycling surplus into Treasuries is ending
- $550B investment commitment already being deployed
- US-EU-Japan critical minerals pact signed (MOU within 30 days)
- JX Metals expanding InP substrate production 3x by 2030
- Japan remilitarizing: 10,000+ NK troops in Russia driving defense urgency
| Ticker | Name | Thesis | Source |
|---|---|---|---|
| EWJ / DXJ | Broad Japan ETFs | Consensus long, but DXJ 3-sigma stretched | Multiple |
| 5726 JP / 5727 JP | Osaka Titanium / Toho Titanium | 80% Western titanium market share, single-digit fwd EBITDA | Citrini |
| 6890 JP | Ferrotec | China sub worth 2x parent mkt cap, 6.7x EBITDA | @anonymous3nibrv |
| 3445 JP | RS Technologies | Semi supply chain, ~$600M mkt cap, 6x EV/EBIT | |
| TOTO | TOTO | Activist Palliser: "most undervalued AI memory beneficiary" (ceramics) | Palliser Capital |
| 8001.T / 8031.T | Trading houses | Buffett trade: short yen + short rates + long equities = "best macro trade of past 5 years" | @Citrini7 |
Hendry's sleeve: Factory automation, precision tools, materials, specialty chemicals, power equipment
- USD/JPY 150 = carry unwind trigger level
- BoJ next hike — market pricing April, Nomura says June. Further hikes = more JGB stress
- JGB liquidity — was at record worst in Jan, improved since but fragile
- DXJ overbought — 3-sigma vs SPX per Pinebrook
- TOPIX technical — farthest from 150 EMA since 2013
- Japanese life insurer repatriation — real risk if domestic yields keep rising
- Iran escalation — yen historically counter-cyclical since 2005, could strengthen sharply in risk-off
Bull case (Hendry, Howell, consensus flows): Regime change. 25-year breakout confirmed. Thin market + political stability + strategic realignment + yen debasement = Nikkei multiples of current levels. Own broad Japan, hedge yen.
Bear case (Perera, Pinebrook technicals): Carry trade is a ticking bomb, life insurer repatriation creates self-reinforcing yen strength loop, and the trade is now 3-sigma crowded. Aug '24 episode (Nikkei -12%) was a preview at a fraction of current exposure.
Consensus smart money position: Long Japan equities, short yen — but the Hendry/Elliott framing and the Hartnett yen-Nikkei correlation flip suggest this may be evolving. The trade isn't broken, but it's stretched.