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Investing.com-- Japanese equities are poised to benefit from fading trade-related risks after Tokyo and Washington agreed to a reciprocal tariff framework in July, Morgan Stanley analysts said in a research note.
The July 22 agreement on a 15% tariff sharply reduced uncertainty that had weighed on investor positioning, particularly in the auto sector, analysts said.
“We believe that the distortions in investor positioning caused by tariff concerns over the past several months will gradually unwind,” analysts wrote.
First-quarter earnings for Japanese firms were stronger than expected, with recurring profit falling 8% year-on-year but beating consensus by more than 10%, the bank noted.
Sectors including foods, pharmaceuticals, utilities, and transportation look attractively valued, while banks, energy and machinery appear relatively expensive, it added.
Morgan Stanley screened for stocks likely to gain from the shift, highlighting names such as Nissin Foods (TYO:2897), Sysmex (TYO:6869), Olympus Corp. (TYO:7733) and Japan Airlines (TYO:9201), while cautioning on more expensive sectors like retail and financials.
Analysts said they favour large-cap, liquid stocks with recurring profit performance above guidance.
Morgan Stanley expects upward earnings revisions to support consensus EPS and provide a tailwind for Japanese equities, saying that easing policy headwinds and resilient technology demand should underpin the market in the second half of 2025.