Japan’s Market Rally Gains Momentum
Japan’s stock market is on a record-breaking run, with the Nikkei 225 soaring past the 48,000 mark and the TOPIX index following closely behind. The rally gained renewed momentum after Bank of America (BofA) upgraded its year-end forecasts for both indexes, citing optimism over Prime Minister Sanae Takaichi’s pro-growth fiscal agenda.
According to the latest report from Investing.com, BofA has raised its 2025 year-end forecast for the Nikkei 225 to 49,000 points, up from its previous estimate of 45,000. The bank also revised its TOPIX target to 3,300 points, an increase from 3,200 earlier this year. The revision reflects growing confidence in Japan’s economic recovery and expectations of robust corporate earnings fueled by fiscal stimulus measures.
Takaichi’s Pro-Spending Policies Drive Optimism
The upward revision comes after a decisive Liberal Democratic Party (LDP) victory under Sanae Takaichi, who is seen as a fiscal dove. Her administration is reportedly preparing a large-scale stimulus package aimed at supporting households, businesses, and infrastructure projects — measures that investors believe could further energize Japan’s economy.
“The Takaichi administration’s fiscal push has significantly changed Japan’s growth narrative,” BofA analysts said. “We expect stronger domestic demand, improved export competitiveness from a weaker yen, and sustained corporate investment throughout 2025.”
Following the announcement, the Nikkei 225 surged to 47,944, a fresh all-time high, while the yen weakened as market participants scaled back expectations for near-term rate hikes from the Bank of Japan (BOJ).
BOJ Policy Outlook Remains Key
Market analysts note that the fiscal expansion under Takaichi could reduce immediate pressure on the BOJ to tighten monetary policy. The Japanese central bank has so far maintained ultra-loose conditions, keeping its benchmark rate near zero while focusing on sustainable wage growth and inflation stability.
“Given the new fiscal stance, we think BOJ normalization will be gradual,” said a BofA strategist. “The policy mix of fiscal stimulus and measured monetary accommodation should keep Japanese equities well-supported into 2026.”
A Reuters report also highlighted that market bets for a BOJ rate hike in the coming months have dropped, with investors pricing in a terminal rate around just 1%. This dovish outlook, combined with fiscal tailwinds, is boosting risk appetite across Japan’s markets.
Corporate Earnings and AI Boom Support Growth
Beyond government policy, corporate Japan is also benefiting from a wave of innovation and global demand for technology components. Chipmakers, robotics firms, and industrial automation companies have been leading the Nikkei’s gains.
“The AI investment cycle is strengthening Japan’s semiconductor and electronics sectors,” BofA said, pointing to increased capital spending by firms tied to global data center and AI infrastructure development.
The bank expects earnings per share (EPS) growth across Nikkei 225 companies to accelerate by 8–10% in FY2025, driven by strong global exports, a weak yen, and improving profit margins. The combination of solid fundamentals and fiscal support could, according to analysts, keep Japan’s markets outperforming other major Asian benchmarks.
International Investors Return to Tokyo Stocks
Foreign investors have also been pouring back into Japanese equities amid a favorable policy environment and attractive valuations. The Tokyo Stock Exchange’s ongoing corporate governance reforms and rising shareholder returns are further improving sentiment.
According to data cited by CNBC Japan, overseas funds bought nearly ¥1.2 trillion in Japanese equities during the first week of October alone — one of the strongest inflows since early 2023.
With both domestic and global confidence improving, BofA believes the Nikkei 225 could sustain levels above 48,000 well into 2026 if fiscal expansion remains on track and corporate reforms continue.
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