Japanese Stock Markets Expected to Benefit from Improving Local Economy, Says UBS
Japanese stock markets are expected to benefit from an improving local economy in the coming years, according to a recent note from UBS analysts. The brokerage forecasts that the benchmark index will end 2025 at 41,500 points, with a nearly 5% upside from current levels, although this is slightly lower than their previous forecasts.
UBS expects Japan’s economy to experience nominal growth, driven by sustained inflation and higher wage increases. The brokerage is also optimistic about planned corporate governance reforms in Japan, which could lead to more shareholder returns and better overall value.
However, UBS also warns that a tariff-heavy scenario could make it difficult for the Japanese economy to avoid a recession, and recommends a shift into sectors with exposure to domestic demand. The brokerage expects the Bank of Japan to raise its policy rate to 1% by the end of 2025, which will benefit private consumption.
UBS is taking a bullish stance on consumption-related sectors such as retail and food, as well as other sectors with exposure to local demand, including housing, real estate, IT services, and telecommunications. However, political turmoil in the country could present downside risks, particularly following recent general elections that saw a coalition led by the ruling Liberal Democratic Party fail to win a majority.