A host of opportunities in Japan’s AI potential

The potential for innovation adds to the other tailwinds that are lining up for Japanese equities and brings a host of additional investment opportunities in Japan. Below is an inspiration list for your reference.

• Chip manufacturers and testing: Advantest, Kyocera, Renesas, Lasertec, Shibaura Mechatronics, Screen Holdings, Tokyo Electron, Tokyo Seimitsu
• Automation manufacturers: SMC Corp, Omron, Yaskawa, Keyence, FANUC
• AI-integrated products: Sony, Nintendo, Nikon, Hitachi, Kawasaki, Mitsubishi, Toshiba
• AI-driven services: Appier, Change Holdings, NTT Data Corp, AI Inside, Advanced Media
• ETFs: Global X Japan Semiconductor ETF, Global X Japan Robotics & AI ETF

Risks to the view

While the potential for Japan to gain a competitive edge in manufacturing is immense, there will likely be a hesitancy from companies looking to diversify their supply chains outside China, given the weak labour supply and rising wage pressures in Japan. The reshoring among Japanese companies could also remain limited to production of higher-end products on a smaller scale. A weak yen also means a high cost of imports of raw materials for companies looking to move production to Japan. On the contrary, a sharp appreciation in the yen could reduce the demand for Japan-made consumer electronics and other products. Meanwhile, recent sharp gains in semiconductor stocks could also mean that the expectations of technology advancement have already been priced in.

Smoothing of US-China tensions could slow down or reverse the realignment of global supply chains. Japan has also announced some curbs on exports of semiconductor chips, which could impact earnings of key Japanese chip companies. In addition, any AI-related advancements could be interrupted by regulation risks or energy supply constraints.