Japanese stocks are anticipated to surge in the coming months, with analysts at UBS projecting the Nikkei 225 index to reach new record highs by year-end. Optimism surrounding business reforms and robust earnings is cited as the driving force behind this bullish outlook.
According to UBS, the Nikkei 225 is poised to close the year at 45,000 points, while the broader TOPIX index is expected to hit 3,120 points, representing significant upside potential of approximately 19% and 17% respectively from current levels.
Export-oriented firms are predicted to be the primary beneficiaries in the Japanese market, with UBS also forecasting a weaker yen. The brokerage foresees the USDJPY pair ending 2024 at 160, attributing this to a dovish stance from the Bank of Japan and higher U.S. interest rates.
UBS highlights certain Japanese stocks, particularly in the automobile, financial, and consumer goods sectors, as offering increased value for shareholders due to buyback announcements.
In addition to ongoing earnings growth, UBS expects advancements in business reforms, including enhanced shareholder returns and growth strategies, which they believe will lead to further improvement in valuations.
Despite a dip in Japanese stock markets in April, influenced by profit-taking and tempered enthusiasm in the technology sector, UBS remains optimistic about the resilience of corporate earnings as Japan's first-quarter earnings season gains momentum.
The persistently dovish stance of the Bank of Japan is seen as potentially attracting more capital flows into Japanese markets, particularly given the central bank's cautious outlook on future interest rate hikes, despite its recent hike after 17 years.
The ultra-dovish stance of the BOJ has been a significant driver of the Japanese stock market rally over the past couple of years, especially in comparison to rising interest rates in other developed economies.
Paraphrasing text from "Investing" all rights reserved by the original author.
