Thursday May 23 2024 10:04
5 min
Japan's Nikkei 225 index has projected to rise 4.6% by year-end, bolstered by a strong corporate outlook and a robust global economy, according to a recent Reuters poll of equity market strategists.
The Nikkei 225 is expected to reach 40,750 by the end of this year, based on the median estimate of 16 analysts polled between May 13-21 — up from Wednesday’s close of 39,103.22.
Recent gains have been limited as local companies issued modest earnings forecasts during the peak of the earnings season this month.
The index has hovered below 40,000 since early April, after hitting a record intraday high of 41,087.75 on March 22.
Tomochika Kitaoka, chief equity strategist at Nomura Securities, told Reuters:
"Many Japanese companies made conservative annual forecasts but they are expected to raise their outlook toward the end of the year, which will lift the Nikkei. And expectations for further progress in corporate governance reform will also push up share prices”.
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The rally has been driven by share buybacks and the unwinding of cross-shareholdings due to governance changes. The Nikkei 225 has risen by 17.47% so far this year, following a 28.2% gain in 2023.
Yugo Tsuboi, chief equity strategist at Daiwa Securities, commented "The U.S. economy is strong and will remain strong even if (Donald) Trump wins the presidential election”. Tsuboi expects the Nikkei to be at 43,000 at the end of the year.
A global economic upturn is expected to help the Nikkei 225 reach 44,000 before pulling back to 40,500 by year-end, according to a forecast by Hikaru Yasuda, chief equity strategist at SMBC Nikko Securities.
Uncertainty about the yen's movement against the dollar has also impacted sentiment in the Japanese stock market. However, some strategists believe the potential negative impact of a stronger yen will be limited.
The Japanese yen fell to a 34-year low of 160.245 per dollar late last month before sharply rebounding — likely due to several rounds of yen-buying intervention by authorities in Tokyo.
Masayuki Kubota, chief strategist at Rakuten Securities, was cited as saying:
"If the yen strengthens, foreign investors may sell the Nikkei. But I expect the Nikkei to be at 40,000 at the end of this year even as the yen rises to 142 yen to the dollar because earnings of Japanese companies are on the rise”.
Analysts at Citi Wealth Management in Hong Kong saw the Japanese yen regain its strength against the dollar over the next 6 to 12 months. Their USD to JPY forecast saw the pair at 146 in that timeframe. The analysts’ long-term Japanese yen forecast saw USDJPY at 130.
Shingo Ide, chief equity strategist at NLI Research Institute, added that the Nikkei is unlikely to experience a correction of 10% or more in the coming three months. As per the analyst’s comment to Reuters:
"There are some potential risks, such as a deterioration of the U.S. economy and the chip boom, as well as tensions in the Middle East, but unless these things occur, the Nikkei is unlikely to fall below 35,000”.
At the time of writing on May 23, the USD to JPY pair traded at 256.59, with the yen gaining 0.14% against the dollar on the day.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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