Japan is likely to see a re-acceleration in domestic activity this year, but we find the outlook for Japanese equities to be too reliant on assumptions of a reversal in consumer activity and sustainable strength in foreign demand to get too excited about early 2022 prospects. Second half prospects may improve as stimulus measures make their way through the economy. Fiscal and monetary policies remain highly accommodative and should help boost consumer activity and earnings projections. Additionally, any supply chain improvements will help support export growth. The risk of additional restrictions related to new covid variants, the propensity of the population to increase savings rather than spend, and weaker than expected export demand could thwart optimistic recovery efforts. We recommend an underweight and wait and see position for Japanese equities.