While the Nikkei Boomed, Japan's Software Went on Sale

Japan’s overlooked small- and mid-cap software companies offer attractive value because operating performance and pricing power have held up despite fears that generative AI will make traditional software obsolete.

• The TOPIX rose almost 35% and the Nikkei 225 almost 60% in the year to 30 June 2026, while the MSCI Japan Software & Services Index fell around 35% between January and June.
• Forager increased Japan’s weighting in its International Shares Fund from around 5% a few years ago to 18%, mainly through small- and mid-cap software and IT consulting companies.
• OBIC Business Consultants reported June-quarter revenue growth of almost 14%, cloud-revenue growth above 25%, and faster profit growth; customer retention exceeds 99% and its operating margin was 47% of revenue.
• OBC announced its first price increase on core cloud products, at roughly 15%, with new customers paying from October and existing customers at renewal from January 2027; its shares rose almost 9% and are about 45% above their mid-June low.
• Similar evidence appeared elsewhere: Sage fell more than 40% from its 2025 high before recovering over 35% from its February 2026 low, while Wix reported 15% recurring-revenue growth and its shares rose 50% since early July.

Takeaway: The sell-off appears to have overstated AI-disruption risks for essential software with high retention and pricing power, although Forager acknowledges that further results are needed to disprove the broader bear case and says opportunities have narrowed after the rebound.