S& P 500 hits all time highs U.S.-Japan trade deal optimism
Investing.com-- Japan’s stock market is nearing its bottom and poised for a gradual recovery by the end of 2025, despite near-term volatility driven by U.S. tariff negotiations and earnings revisions, Bank of America (BofA) analysts said in a note.
BofA analysts said that the TOPIX index’s price-to-earnings (P/E) ratio fell to 11.2x in early April, below its typical range of 12-16x, suggesting the market has "priced in future earnings deterioration all at once."
BofA projects a range-bound market through June, followed by a gradual recovery starting in July and a stronger upturn in the fourth quarter.
Key catalysts include progress in U.S.-Japan tariff talks, potential U.S. tax cuts, and clearer corporate guidance on tariff impacts from first-quarter earnings, BofA analysts said.
However, they cautioned that sustained U.S. dollar weakness or financial system instability could delay the rebound.
BofA recommended focusing on low-beta domestic demand sectors with stable earnings, such as pharmaceuticals and utilities, while selectively adding quality cyclical stocks during dips.
They highlighted Chugai Pharmaceutical (TYO:4519) and KDDI Corp. (TYO:9433) as examples of resilient picks.
Corporate reforms and share buybacks are likely to support prices, even if earnings weaken temporarily, analysts said, citing Japan’s accumulated cash reserves and shareholder-friendly policies.
BofA maintained a "cautiously bullish" stance but warned that risks remain, particularly if U.S. recession fears escalate.