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Bank of America (BofA) has upgraded its year-end forecasts for Japan’s major stock indexes, fueled by optimism over economic expansion and policy continuity under new Liberal Democratic Party (LDP) President Sanae Takaichi. The bank now expects the Nikkei 225 to reach 49,000 points (up from 45,000) and the TOPIX to hit 3,300 points (up from 3,200). Analysts noted that sustained market momentum could push the benchmarks even higher—to 50,000 and 3,370 points, respectively.
BofA’s analysts said the political transition represents a shift toward growth-oriented and reflationary policies, contrasting with former Prime Minister Shigeru Ishiba’s focus on fiscal restraint. Takaichi’s administration is expected to emphasize fiscal expansion, tax incentives, and nominal growth, supporting a more bullish market outlook.
Despite strong rallies, BofA believes Japan’s stock valuations remain supported by earnings potential. The price-to-earnings (P/E) ratio for the TOPIX stands near 15.7 times, within its historical range, with 12-month forward earnings per share projected to rise on 13.5% profit growth next fiscal year.
The investment bank warned that markets could experience short-term corrections after recent gains but maintained a positive medium-term view. Key drivers include unexecuted share buybacks worth about 6.5 trillion yen, a potential supplementary budget, and pro-growth fiscal measures. These factors, according to BofA, could stabilize markets and sustain investor confidence.
Sector-wise, BofA favors industries aligned with Takaichi’s policy priorities such as defense, cybersecurity, nuclear energy, construction, and real estate. It also maintains a selective overweight stance on AI hardware, nonferrous metals, and industrial electronics.
Risks highlighted include rapid yen depreciation, possible Bank of Japan rate hikes, coalition negotiations with Komeito, and U.S. inflation shocks.
Japanese equities surged to record highs this week following Takaichi’s leadership victory, which positions her to become Japan’s first female Prime Minister ahead of the mid-October parliamentary session.
