Japanese Stocks Poised for Strong Growth, Nikkei to Hit Record Highs, Says UBS
Japanese stocks are expected to strengthen significantly in the coming months, with the Nikkei 225 set to hit new record highs this year. UBS analysts made this prediction in a recent note, citing optimism over progress in business reforms and strong earnings growth.
According to UBS, the Nikkei 225 is expected to close the year at 45,000 points, while the broader TOPIX index is set to reach 3,120 points – both record highs. These figures represent upsides of 19% for the Nikkei and about 17% for the TOPIX from current levels.
The main performers in Japanese markets are expected to be export-oriented businesses. UBS also forecasts further weakness in the yen, with the USDJPY pair expected to close out 2024 at 160. This is due to the Bank of Japan’s dovish stance and higher-for-longer U.S. interest rates.
UBS analysts believe that Japanese stocks will continue to attract value for shareholders due to buyback announcements, particularly in the automobile, financials, and consumer goods sectors. They also anticipate further progress in business reforms, including the expansion of shareholder returns and growth strategies, which could lead to improved valuations.
After a stellar performance through the first quarter, Japanese stock markets have recently experienced losses due to profit-taking and a decline in artificial intelligence-fueled enthusiasm in the technology sector. However, UBS believes that this trend could change as Japan’s first-quarter earnings season picks up pace, with resilience in corporate earnings expected. The persistently dovish Bank of Japan’s monetary policy could also attract more capital flows into Japanese markets.
An ultra-dovish BOJ was one of the key drivers of the Japanese stock market rally over the past two years, especially as interest rates in other developed economies rose sharply. The central bank’s recent interest rate hike in March was largely seen as a dovish move, suggesting that the BOJ will continue to provide ample liquidity in the market.
