In the second quarter of 2025, the landscape of Japanese equities presented a dynamic picture, marked by an initial downturn due to U.S. tariff announcements followed by a robust recovery. The market quickly rebounded as a temporary reprieve on tariffs alleviated investor anxieties, leading to a generally positive environment for Japanese stocks. Concurrently, core inflation continued its upward trajectory, prompting the Bank of Japan to signal a readiness for future interest rate adjustments, further indicating a shift from a prolonged period of deflation towards economic normalization.

During this period, the Oakmark Japan Strategy recorded a net return of 10.73%, reflecting a solid, albeit slightly lower, performance compared to the MSCI Japan Index's 11.36%. Several companies significantly bolstered the portfolio’s gains. TechnoPro Holdings saw its stock climb amid speculation of a potential privatization and strategic growth initiatives. TIS Inc. also contributed positively, driven by strong financial results and a substantial share repurchase program. Similarly, Sugi Holdings outperformed expectations with robust earnings and a confident outlook for 2025, fueled by strategic acquisitions. Conversely, some holdings faced challenges, with MISUMI Group experiencing a decline due to tariff concerns, despite its strategic acquisition of Fictiv. Olympus and NAKANISHI also saw their stock prices decrease, impacted by tariff uncertainties and broader macroeconomic tensions, even as both companies pursued cost-saving measures and share buyback programs, respectively.

Looking ahead, the investment philosophy of value investing, particularly in international markets, is poised for a significant re-evaluation. For over a decade, U.S. growth and momentum stocks dominated, largely influenced by currency differentials and valuation expansions. However, the current period suggests a potential shift, as this long-standing trend begins to reverse. The expanding valuation spread observed over the past ten years reinforces the conviction that such disparities are unsustainable, pointing towards a future where value-oriented strategies are likely to yield substantial benefits, driven by improved fundamentals and increased investor interest in attractively priced global regions like European equities.