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Japan’s stock market is nearing a bottom and may begin a slow recovery in the second half of 2025, according to a note from Bank of America (BofA). Despite short-term volatility caused by U.S. tariff negotiations and downward earnings revisions, analysts maintain a “cautiously bullish” outlook.
BofA pointed to the TOPIX index’s recent price-to-earnings (P/E) ratio drop to 11.2x in early April, below the historical average of 12-16x. This indicates that much of the anticipated earnings decline may already be factored into current prices.
The firm expects a range-bound market through June, with gradual gains starting in July and stronger performance in the fourth quarter. Key drivers include progress in U.S.-Japan trade talks, potential tax cuts in the U.S., and greater clarity on corporate earnings guidance, particularly regarding tariff impacts.
However, BofA warned that persistent U.S. dollar weakness or financial instability could delay the market’s rebound. To manage risk, they advise focusing on Japan’s low-beta domestic sectors like pharmaceuticals and utilities, which offer stable earnings. They also recommend selectively buying high-quality cyclical stocks during market dips.
Highlighted stocks include Chugai Pharmaceutical (TYO:4519) and telecom firm KDDI Corp. (TYO:9433), both seen as resilient amid ongoing uncertainty. Analysts also noted that Japan’s strong cash reserves and shareholder-friendly reforms, including share buybacks, could support stock prices even if earnings face short-term pressure.
While risks such as a potential U.S. recession remain, BofA believes Japan’s equity market is well-positioned for a late-2025 recovery, backed by structural reforms and cautious optimism in the face of global macroeconomic headwinds.
