Goldman Sachs believes that Japanese stocks have further upside potential despite a strong rally this year. The bank increased its 12-month target for the Topix index from 4,200 to 4,400, suggesting an upside of over 11% from current levels.
This optimism is based on a positive earnings season and improved forecasts for corporate earnings, with Goldman revising its earnings-per-share growth estimates for fiscal 2026 to 11% from 7%. The bank also maintained its fiscal 2027 estimate at 11% and projected 9% growth for fiscal 2028.
The current market valuation, which has retreated to around 15 times earnings due to earlier geopolitical tensions, is seen as having room to expand, with a target forward price-to-earnings multiple set at 17.5 times. Additionally, foreign investment has surged, with approximately 16 trillion yen ($100.3 billion) flowing into Japanese equities since April 2025.
The report highlights that total shareholder returns for Topix companies reached 43 trillion yen in fiscal 2025, supported by robust buyback announcements during the recent earnings season