Japanese equities rallied in August, supported by expectations of U.S. rate cuts, easing tariff concerns, and strong domestic GDP data, despite early weakness and yen appreciation. The Nikkei 225 and TOPIX reached record highs mid-month, although sentiment was later weighed down by U.S. tech declines and currency movements.
Japan’s Q2 GDP grew at an annualized rate of +1.0%, driven by capital investment and exports. The Economy Watchers Survey showed improving sentiment despite inflation and extreme heat. While the 15% U.S. tariff may slightly dampen growth (–0.5%), resilient domestic demand and wage increases are expected to offset the impact.
The BoJ raised its FY2025 inflation forecast and may consider a rate hike in early 2026, depending on the effects of tariffs and wage momentum. Real interest rates remain negative, supporting nominal growth and equity valuations.
Despite concerns over valuations and political uncertainty, structural shifts toward inflation and corporate reform support a constructive market view. FY2025 earnings growth is modest, but FY2026 forecasts suggest double-digit growth under normalized conditions. Based on a 16x P/E multiple, TOPIX could reach 3,400 within the next 6–12 months.
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Written by Kazuhiko Hosaka, Senior Product Specialist, Asset Management One Co., Ltd