Source: Zhitong Finance

Stock market strategists said that Japan's Nikkei 225 Index will rise 4.6% by the end of the year, supported by promising corporate prospects and a steady global economy. According to the median estimate of 16 analysts surveyed from May 13 to 21, the Nikkei index is expected to close at 40,750 points by the end of this year, up from 38946.93 points at Tuesday's close.

Recent stock market gains have been limited due to Japanese companies posting moderate profit expectations during the peak of this month's earnings season. After hitting an intraday record high of 41087.75 points on March 22, the index has been hovering below 40,000 points since the beginning of April.

Tomochika Kitaoka, chief stock strategist at Nomura Securities, said: “Many Japanese companies have made conservative annual forecasts, but they are expected to raise their expectations before the end of the year, which will boost the Nikkei Index. Expectations for further progress in corporate governance reforms will also drive up stock prices.”

Driven by changes in corporate governance, stock repurchases and cross-shareholder liquidation are the reasons for the rise in the Shanghai Composite Index. The Nikkei index has risen 16.4% so far this year, while it has risen 28.2% in 2023. Japanese companies are increasing dividends and share buybacks at a record rate to support a market on the brink of adjustment. Fumio Matsumoto, chief strategist at Okasan Securities, said that 53% of companies that reported earnings before May 10 announced plans to increase their dividends this fiscal year.

The Tokyo Stock Exchange pressured companies to improve capital efficiency and valuations, so many companies increased their dividends to shareholders. They also helped spur the TSE index to rebound after falling nearly 10% from its March high. Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management, said, “The company is taking action. Investors have welcomed this.”

The announcement of the repurchase of Japanese shares also reached an all-time high. According to Goldman Sachs Group data, Japanese companies announced 1.2 trillion yen (7.7 billion US dollars) share repurchases in April, setting a record for the first month of this fiscal year. Bruce Kirk, chief Japanese stock strategist at Goldman Sachs, wrote: “This indicates that fiscal year 2025 will be another record year for announcing buybacks.”

Shareholder returns partially offset the disappointment brought about by the company's cautious profit expectations. According to Sumitomo Mitsui Nikko Securities, TSE's constituent stocks expect a net revenue increase of only 0.8% for the current fiscal year.

Traditionally, Japanese companies give careful performance guidance at the beginning of the fiscal year, so many investors expect their performance to be revised upward over time. Investors favor dividend increases combined with long-term capital plans such as increasing overall dividend rates. Neuberger Berman East Asia senior vice president Kei Okamura said that this provides a clearer long-term outlook and is beneficial to stock prices.

Yugo Tsuboi, chief stock strategist at Daiwa Securities, said: “The US economy is strong and will remain strong even if Trump wins the presidential election.” He expects the Nikkei Index to reach 43,000 points by the end of this year.

Hikaru Yasuda, chief stock strategist at Sumitomo Mitsui Nikko Securities, said that an improvement in the global economy will help the Nikkei Index rise to 44,000 points and then fall back to 40,500 points at the end of the year.

Uncertainty about the trend of the yen against the US dollar has also dampened the popularity of the Japanese stock market, but some strategists say that the negative impact of a possible appreciation of the yen against the US dollar will be limited. At the end of last month, the yen fell to a 34-year low of 160.245 yen against the US dollar, then rebounded sharply. Traders and analysts suspected that this was an intervention by the Japanese authorities to buy yen in multiple rounds.

Masayuki Kubota, chief strategist at Rakuten Securities, said, “If the yen strengthens, foreign investors may sell off the Nikkei Index. But I expect that although the exchange rate of yen against the US dollar rises to 142 yen per dollar, the Nikkei index will rise to 40,000 points by the end of this year because Japanese companies' profits are rising.”

The strategists also said that the Nikkei index is unlikely to be revised by 10% or more in the next three months. Shingo Ide, chief stock strategist at NLI Research Institute, said, “There are some potential risks, such as the worsening US economy and the chip boom, and tension in the Middle East, but unless these things happen, the Nikkei index is unlikely to fall below 35,000 points.”

Editor/jayden