Dear clients,
As Japanese equities have unexpectedly come back into fashion with global investors, analysts at leading Wall Street investment banks are predicting further gains in the country’s major indices.
Japan’s Topix index (Tokyo Price Index) has reached new highs in the last two weeks, and on Monday it recorded its highest level since July 1990.
It has jumped 14% since the start of this year, recently fuelled by optimism from the tentative debt ceiling deal reached between US President Joe Biden and House Speaker Kevin McCarthy, along with momentum from a weaker yen. Meanwhile, the Nikkei 225 continues to rise, gaining around 20% over the past year.
The start of an inflationary regime, combined with Tokyo Stock Exchange valuation reforms, will see Japanese equities hit record highs as early as the first half of 2025, according to BofA Securities.
BofA’s forecasts echo those of other Wall Street firms, which see further room for a rally in Japanese equities. Heightened interest from foreign investors, strong earnings and a weak yen should continue to support growth in the Topix index. Disappointment with the Chinese economy and Warren Buffett’s recent interest in the Japanese market are also cited as motivators.
While equities may face headwinds in the near term, the BofA said there is „no need to take a bearish stance if the market rallies in line with fundamentals“. The current investment environment remains favourable following the opening of the economy and stronger inflation.
The rush in Japanese equities reached a record high on Wednesday amid a continued surge in foreign demand for the country’s shares and an adjustment in positions ahead of the rebalancing of the MSCI equity index.
The value of shares traded on the Tokyo Stock Exchange’s Prime Market index reached an unprecedented level of nearly 7 trillion yen ($50 billion) on May 31. Finance Ministry data on Thursday showed foreign investors were net buyers of Japanese shares for nine consecutive weeks in the period ended May 26, the longest buying period since November 2019.
