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Goldman Sachs Lifts TOPIX 12-Month Target to 4,500 on Weaker Yen Forecast
Summary
Goldman Sachs has raised its forecast for Japan's benchmark TOPIX index, citing a revised outlook for a weaker yen that is expected to significantly boost corporate earnings.
Goldman Sachs has upgraded its 12-month target for Japan’s benchmark TOPIX index to 4,500 from a previous 4,400, according to a research note. The revision is primarily driven by the bank's expectation of a weaker yen, which it anticipates will provide a strong tailwind for corporate earnings.
Revised Forecasts and Currency Outlook
The new 12-month target represents a potential upside of approximately 12% from the TOPIX's close of 4,011.31 cited in the report. The bank also increased its shorter-term targets, lifting its 3-month forecast to 4,200 and its 6-month forecast to 4,300.
Underpinning this optimistic view is a significant shift in Goldman's currency assumptions. The firm's foreign exchange strategists now project the U.S. dollar will trade at:
- 162 yen in three months
- 163 yen in six months
- 165 yen in 12 months
This outlook for a depreciating local currency led Goldman to forecast TOPIX earnings per share (EPS) growth of 13% in fiscal year 2026, followed by 11% in FY27 and 9% in FY28.
Market Resilience and Investor Flows
AdAnalysts noted that while the market faces near-term volatility from concerns over global AI demand and geopolitical tensions, the TOPIX has shown resilience, falling just 2% from its record high in June. Valuations have remained in a stable range of 16 to 17 times forward earnings.
Capital flow data from June revealed a divergence among international investors. North American investors were net buyers of Japanese stocks to the tune of ¥600 billion, while European investors were net sellers of ¥1.5 trillion. More recent data from mid-July showed foreign investors as net sellers overall, with domestic retail investors and local institutions stepping in as net buyers.
Sector Allocations
Goldman Sachs reiterated its "overweight" recommendation on cyclical and financial sectors that stand to benefit from the current economic environment. These include Machinery, IT & Services, Banks, Electrical Appliances, and Steel.
Conversely, the bank maintained an "underweight" position on defensive sectors such as Utilities, Foods, Pharmaceuticals, and Transport.
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