HS Suit
Hisashi SHIRAKI Chief Global Strategist
Published
07/01/2025
Estimated read time 4 minutes
Outlook on the Japanese equity market
  • We estimate the Nikkei 225 will surpass the 40,000 mark again in the near future and reach 45,000 by the end of CY 2025. *
  • Further out we are bullish on the Japanese stock market over the mid-to-long term due to steady growth of corporate earnings, the virtuous cycle of “wage increase and mild inflation” and improvements in corporate governance.
  • Range bound trading should break upward post the Trump inauguration.
  • We have seen large levels of share buybacks (as much as 17 trillion 
    yen in FY 2024, equal to $108 bn - ) boosting investor returns.

 

Potential upsides risks
  • An increase in GDP growth now deflation has ended
  • Further improvements of corporate governance, driven by 
    the Tokyo Stock Exchange

 

Potential downside risks
  • Tighter fiscal policy aimed at achieving a primary surplus
  • Excessive and rapid appreciation of the yen, which could impact corporate earnings
  • Stagnation in the manufacturing business cycle

 

Limited negative impact from overseas

Core CPI for the nation rose by +2.3% YOY in October, down from +2.4% in September, while the Tokyo Metropolitan Area core CPI rose by +2.2% YOY in November, up from +1.8% in October. The rise in the Tokyo Metropolitan Area core CPI was mainly driven by energy prices, following the reduction of government emergency measures to cope with the extreme heat. Additionally, rising service prices and cost-push pressure from the depreciation of the JPY may have also contributed.

 

Core CPI projections adjusted only for 2026

While the core CPI forecast remains at +2.6% for FY 2024 and +2.1% for FY 2025, it has been lowered for FY 2026 from +1.9% to +1.5%. Cost-push pressure from import prices will decrease, but inflation will stabilise due to wage-driven service price increases. The BOJ Core CPI is forecast at around +2.0% YOY, excluding subsidies for utilities and petrol tax changes.

 

Real GDP growth forecasts revised upwards

We have raised the real GDP growth forecast for FY 2024 from +0.3% to +0.5% and for FY 2026 from +0.8% to +0.9%, maintaining FY 2025 at +1.2%. 
The upward revision for FY 2024 reflects data from July-September 2024, while FY 2026 reflects the assumed elimination of the provisional gasoline tax. The increase in the minimum taxable income is expected in 2025, with a moderate growth path supported by wage increases, CAPEX appetite, economic measures, and resilient overseas economies.

 

Government plans fiscal measures for growth

The government is expected to adopt accommodative fiscal policies to combat deflation over the next three years. Prime Minister Ishiba confirmed a focus on sustainable growth. The Cabinet approved economic measures, including a tax cut agreement to raise the minimum taxable income to 1.78 million yen ($11.3k circa) in 2025 and eliminate the gasoline tax.

 

Bank of Japan - monetary policy unchanged

The forecast for BOJ monetary policy remains unchanged. We expect rate hikes to 0.50% in January 2025, 0.75% in July 2025, 1.00% in January 2026, and 1.25% in January 2027. BOJ will coordinate with the government before each rate hike, considering inflation and global conditions. Gradual hikes toward a neutral rate will proceed until 1%, with risks from Trump led US tariffs increasing. If the Japanese economy is impacted, the BOJ may delay further rate hikes.

 

If you would like to access the full report please contact your business development representative.

 

Nikkei 225 - January 2025
Topix 225 - January 2025
Consumer Price Index Japan - January 2025

*Calculated by multiplying current and next fiscal year’s estimated EPS by 12 month forward price to earnings ratio. These forecasts represent our house view based on bottom up and top down analysis, rather than a simulation of past performance of the equity market.

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This material is not intended to serve as an invitation, offer, solicitation or recommendation for any investment strategy or the purchase or sale of securities, including shares or units of funds. Any views, analyses, perspectives expressed, and references to companies should not be construed as recommendations or endorsements by SMDAM(HK). All comments, opinions, data and forecasts in this material are based on the information available at the time of drafting, and are subject to change without prior notice in response to market and other conditions. The information provided does not constitute investment advice and should not be relied upon as such.

This material may contain certain statements that may be deemed to be forward-looking statements. Please note that any such statements are not guarantees of future performance and actual results or developments may differ significantly from those projected. No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. This material does not have any regard to the specific investment objectives, financial situation and the particular needs of any specific person who may access or receive this material.

Investment involves risk, including the possible loss of principal amount invested. The past performance information of the market, manager and investments and any forecasts on the economy, stock market, bond market or the economic trends of the markets are not indicative of future performance. Any investment decisions made by investors should not be solely based on this marketing material. Investors should refer to the fund’s offering document in order to fully understand the associated risk factors. The value of an investment may go down or up. The final decision in relation to any investment in any stock, companies or markets referred to in this material should be made by you. If investment returns are not denominated in HKD or USD, US/HK dollar-based investors will be exposed to exchange rate fluctuations.

The contents of this material are protected by copyright. Without SMDAM(HK)’s prior written consent, copying, reproduction or distribution of its contents in a hard copy and/or through the internet is strictly prohibited. Where the contents of this material have been translated into any language other than English and there is any inconsistency or ambiguity between the English version and the other version, the English version shall prevail. The above policies are subject to review and amendments by us from time to time.