Japanese stocks due for more upside, Nikkei seen at 45,000- UBS

Investing.com-- Japanese stocks are expected to strengthen in the coming months with the Nikkei 225 set to hit new record highs this year, UBS analysts wrote in a note, citing optimism over progress in business reforms and strong earnings. 

The Nikkei 225 is expected to close the year at 45,000 points while the broader TOPIX is set to reach 3,120 points- both record highs, UBS analysts said. The 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, with UBS also forecasting more weakness in the yen. The brokerage expects the USDJPY pair to close out 2024 at 160, citing a dovish Bank of Japan and higher-for-longer U.S. interest rates. 

UBS said certain Japanese stocks also represented increased value for shareholders from buyback announcements, particularly in the automobile, financials and consumer goods sectors. 

“... alongside continuing steady growth in earnings, we anticipate progress with business reforms including the expansion of shareholder returns and growth strategies. We expect valuations to improve further,” UBS analysts wrote in a note. 

After a stellar performance through the first quarter, Japanese stock markets were now nursing steep losses through April, driven by a mix of profit-taking and as investors priced out some artificial intelligence-fueled enthusiasm from the technology sector.
But this trend could change as Japan’s first-quarter earnings season picks up pace, with UBS forecasting resilience in corporate earnings. 

A persistently dovish BOJ could also attract more capital flows into Japanese markets. While the central bank did hike interest rates for the first time in 17 years in March, it provided a largely dovish outlook on future hikes. 

An ultra-dovish BOJ was also one of the key drivers of a Japanese stock market rally over the past two years, especially as interest rates in other developed economies rose sharply.