Why U.S.-Japan pact is underappreciated among institutional investors

SelfRugger · 2026-03-24T03:20:32+00:00

The U.S.-Japan partnership, vital for trade and security, is undervalued by institutional investors, according to Jefferies. A $550 billion investment deal will lower tariffs and boost sectors like energy, defense, and AI infrastructure, offering significant economic opportunities.

SelfRugger

2026-03-24 03:20:32

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Why U.S.-Japan pact is underappreciated among institutional investors

Sam Boughedda

Sat, February 14, 2026 at 7:30 PM GMT+9 1 min read

Investing.com – The U.S.-Japan partnership is gaining importance across trade, investment, and security, but Jefferies says it remains underappreciated by institutional investors.

Analyst Aniket Shah stated in a note to clients this week that a $550 billion investment deal is a key catalyst, lowering reciprocal tariffs from 25% to 15% and expanding U.S. export access across “manufacturing, aerospace, agriculture, energy, autos, and industrial goods.”

The agreement prioritises energy, AI infrastructure, and critical minerals processing, with the first project expected by March.

Jefferies said the U.S. is “positioned to retain 90% of project-level profits once costs are recovered, and all funding must be allocated by Jan. 19, 2029.”

Defense exposure is also set to rise as Japan procures more U.S. systems, including Tomahawk deployments.

Japan already plays a central role in U.S. capital markets. As of end-2024, it held $819 billion in U.S. FDI stock, the largest of any country, skewed toward manufacturing, electronics, and financial services.

Its Treasury holdings rose to $1.2 trillion by November 2025, $314 billion ahead of the UK, while Japan remains a top holder of U.S. equities, agencies, and corporate bonds.

The U.S.-Japan alliance is reinforced by security ties, with Japan hosting roughly 55,000 U.S. troops and participating in the Quad and U.S.-Japan-Korea trilateral cooperation. Japan plans to raise defense spending to $58 billion in FY26, a 3.8% increase.

Jefferies identified six sectors likely to benefit from the pact: Power & Utilities, AI Infrastructure, Mining & Metals, Defense & Aerospace, Manufacturing & Logistics, and Pharma & Biotech, highlighting broad economic and strategic opportunities for investors.

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