Goldman Sachs lifted its 12-month TOPIX target to 4,500 from 4,400, betting a weaker yen carries Japanese corporate earnings higher. The bank now sees the dollar at 165 yen in a year and TOPIX earnings per share expanding 13% in FY26.
Goldman Sachs raised its 12-month target for Japan's benchmark TOPIX index to 4,500 from 4,400, citing expectations of a weaker yen that will bolster corporate earnings despite short-term market volatility driven by artificial intelligence and geopolitical concerns, according to a research note. The revised target implies roughly a 12% upside from the TOPIX's close of 4,011.31.
Analysts at the Wall Street bank also raised their 3-month and 6-month targets to 4,200 and 4,300, up from 4,100 and 4,200 respectively.
Weaker yen feeds the earnings line
The upward revisions reflect a shift in Goldman Sachs' dollar-yen assumptions. The bank's foreign exchange team now projects the U.S. dollar to trade at 162 yen in three months, 163 yen in six months, and 165 yen in 12 months. Annual rate assumptions were adjusted to 162 for fiscal year 2026, 160 for FY27, and 155 for FY28.
That weaker local currency is set to provide a strong tailwind for Japanese exporters and multinational conglomerates. Goldman Sachs forecasts TOPIX earnings per share to expand by 13% in FY26 to 228 yen, followed by growth of 11% in FY27 and 9% in FY28.
Investor flows split by region
Short-term sentiment may be tested by lingering anxieties over global AI demand and broader geopolitical friction, yet Goldman Sachs noted the index has pulled back just 2% from its record high in June compared with steeper drops in regional peers. Valuations have consolidated within a 16 to 17 times forward earnings range, leaving ample room for long-term expansion.
Capital flows into Japanese equities revealed sharp regional divergence. June data showed North American investors, primarily from the U.S., were net buyers of Japanese shares to the tune of 600 billion yen, while European investors, traditionally focused on value strategies, shed 1.5 trillion yen over the same period.
More recent exchange data for mid-July showed foreign investors as net sellers of cash equities worth 286 billion yen. Domestic retail investors and local financial institutions stepped in as net buyers, absorbing 407 billion yen and 64 billion yen respectively.
Cyclicals favored, tech growth names sold
Goldman Sachs reiterated its overweight stance on cyclical and financial sectors, preferring Machinery, IT & Services, Banks, Electrical Appliances, and Steel. Analysts maintained an underweight position on defensive sectors including Utilities, Foods, Pharmaceuticals, and Transport.
A surge in energy prices and commodity trading boosted industrial heavyweights, with shipbuilder Namura Shipbuilding leading weekly top performers among liquid names with a 13% gain. Mitsubishi Corp and energy explorer Inpex Corp both rallied 11% over the week. Semiconductor packaging maker Ibiden gained 11%.
Consumer discretionary and tech growth stocks faced selling pressure on the other side. Virtual entertainment firm Cover Corp plunged 18%.
Department store operator Takashimaya and automaker Mitsubishi Motors slid 10% and 9% respectively. E-commerce firm Mercari and chemical maker Shin-Etsu Chemical shed 8% and 6%.
Source: Investing.com
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