US CPI and Japanese equities: A flight to quality market

Japanese equities resumed their rise from October, led by AI stocks, but instability has recently intensified again. In terms of stock selection, preference for quality stocks has strengthened, and we expect this tendency to become even more pronounced now that US CPI, released on 14 October, came in above expectations. We think movements in US long-term rates likely influenced stock selection: a strong US PMI triggered the rate spike, but since the robustness of the US economy underpinned the rise, the equity market did not collapse, and the VIX and MOVE index have diverged. After the rate spike investors focused on AI stocks' relatively high growth potential, while selling stocks with business structures vulnerable to rising rates;