Investing.com – Goldman Sachs raised its 12-month target for Japan’s benchmark index to 4,500 from 4,400, citing expectations of a weaker yen that will bolster corporate earnings despite short-term market volatility driven by artificial intelligence and geopolitical concerns, according to a research note.
The revised target implies roughly a 12% upside from the TOPIX’s close of 4,011.31. Analysts at the Wall Street bank also raised their 3-month and 6-month targets to 4,200 and 4,300, up from 4,100 and 4,200 respectively.
The upward revisions reflect a shift in Goldman Sachs’ currency assumptions. The bank’s foreign exchange team now projects the U.S. dollar to trade at 162 yen in three months, 163 yen in six months, and 165 yen in 12 months. Consequently, annual rate assumptions were adjusted to 162 for fiscal year 2026, 160 for FY27, and 155 for FY28.
The weaker local currency is set to provide a strong tailwind for Japanese exporters and multinational conglomerates. Goldman Sachs forecasts TOPIX earnings per share (EPS) to expand by 13% in FY26 to 228 yen, followed by growth of 11% in FY27 and 9% in FY28.
Volatility and investor flows diverge
While short-term sentiment may be tested by lingering anxieties over global AI demand and broader geopolitical friction, Goldman Sachs noted that the TOPIX has proved resilient, pulling back just 2% from its record high in June compared to steeper drops in regional peers. Valuations have consolidated within a scannable 16 to 17 times forward earnings range, leaving ample room for long-term expansion.
Capital flows into Japanese equities revealed sharp regional divergence. Data for June showed North American investors, primarily from the U.S., were net buyers of Japanese shares to the tune of 600 billion yen. In contrast, European investors – traditionally focused on value strategies – were net sellers, shedding 1.5 trillion yen during the same period.
More recent exchange data for mid-July showed foreign investors as net sellers of cash equities worth 286 billion yen, while domestic retail investors and local financial institutions stepped in as net buyers, absorbing 407 billion yen and 64 billion yen, respectively.
Sector allocations and stock movers
Goldman Sachs reiterated its “overweight” stance on cyclical and financial sectors, preferring Machinery, IT & Services, Banks, Electrical Appliances, and Steel. Conversely, analysts maintained an “underweight” position on defensive sectors including Utilities, Foods, Pharmaceuticals, and Transport.
A surge in energy prices and commodity trading boosted industrial heavyweights. Mitsubishi Corp, and energy explorer Inpex Corp, both rallied 11% over the week, while semiconductor packaging maker Ibiden Co Ltd gained 11%. Shipbuilder Namura Shipbuilding Co Ltd led weekly top performers among liquid names with a 13% gain.
On the losing side, consumer discretionary and tech growth stocks faced selling pressure. Virtual entertainment firm Cover Corp plunged 18%, department store operator Takashimaya Co Ltd slid 10%, and automaker Mitsubishi Motors Corp declined 9%. E-commerce firm Mercari Inc dropped 8%, while chemical giant Shin-Etsu Chemical Co Ltd shed 6%.
Source:
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