This is when TOPIX and Nikkei 225 are expected to hit new highs

Investing.com -- Japanese equities are set to reach record highs in the latter half of 2025, according to Citi analysts.

The bank predicted in a note Friday that TOPIX will climb to 3,200 and the Nikkei 225 to 46,000 by year-end, despite facing several macroeconomic headwinds earlier in the year.

Citi expects a modest upturn in the yen, monetary tightening from the Bank of Japan (BoJ), and potential U.S. tariffs to weigh on the market in the first half of 2025.

However, the analysts anticipate these challenges will be offset by robust corporate performance, driven by sustained inflation, pricing power, and improved domestic demand.

“Japanese equities will make major gains between mid-2025 and year-end, reaching new all-time highs,” they wrote.

Supporting factors are said to include revenue growth as inflation persists, improved profit margins through price pass-throughs, and a modest recovery in domestic demand spurred by wage growth and fiscal stimulus.

Citi adds that corporate governance reforms remain another key driver, with the government and Tokyo Stock Exchange (TSE) initiatives expected to boost return on equity (RoE) and return on invested capital (RoIC). Citi argues that this will lead to upward revaluations of Japanese stocks.

In the first half of the year, the analysts expect muted performance, partly due to cautious initial profit guidance for FY2026, which may forecast declines.

However, Citi believes actual earnings will outperform expectations, pushing market sentiment higher.

By the second half of the year, improved corporate earnings and a more favorable macroeconomic backdrop are likely to drive Japanese equities to new heights, setting the stage for the end-of-year rally and record-breaking gains, according to the bank.

Source: Investing.com