4500 points! Goldman Sachs raises target for Japanese stock market, optimistic about yen weakness boosting corporate profits

Goldman Sachs raises its target price for the TOPIX, betting that the continued depreciation of the yen will provide sustained support for Japanese corporate earnings, despite lingering short-term volatility risks.

In a report released on July 24, Goldman Sachs stated that it has raised the 12-month target price for TOPIX from 4,400 to 4,500 points, representing an upside potential of about 12% compared to last Friday's closing price of 4,011.31 points. At the same time, the bank also raised its 3-month and 6-month target prices to 4,200 and 4,300 points respectively. The core logic behind this adjustment is the currency forecast—Goldman Sachs' FX team expects the USD/JPY to rise to 165 over the next 12 months, with the persistent weakening of the yen directly boosting the earnings of exporters and multinational companies.

Goldman Sachs forecasts that TOPIX earnings per share will grow by 13% to 228 yen in fiscal 2026, with subsequent growth of 11% and 9% in the following two years. Despite uncertainties about the global outlook for artificial intelligence and heightened geopolitical tensions possibly causing short-term market volatility, Goldman Sachs highlights that TOPIX has only corrected by about 2% from its historical high in June, demonstrating clear relative resilience.

Currency Expectations Drive Target Price Adjustment

The core driver for this target price increase is Goldman Sachs' latest view on the yen's movement. The bank's FX team expects the USD/JPY exchange rate to reach 162 in 3 months, 163 in 6 months, and 165 in 12 months. Corresponding annual exchange rate assumptions have also been adjusted: 162 for fiscal 2026, 160 for 2027, and 155 for 2028.

The persistent depreciation of the yen constitutes a direct tailwind for Japanese exporters and multinational corporate groups. Based on the above exchange rate trajectory, Goldman Sachs forecasts that TOPIX earnings per share will increase by 13% to 228 yen in fiscal 2026, with further increases of 11% in 2027 and 9% in 2028, displaying a clear logic chain for upward earnings revisions.

Goldman Sachs acknowledges that uncertainties in global AI demand outlook and geopolitical frictions may suppress market sentiment in the short term. However, the firm also points out that the TOPIX has corrected only about 2% from its record high in June, significantly outperforming other markets in the Asia-Pacific region.

Current valuations have stabilized in the 16 to 17 times forward P/E range, and Goldman Sachs believes there is still ample room for long-term expansion. This valuation level provides fundamental support for the target price increase and is one of the key reasons for Goldman’s continued medium-term optimism.

In addition, capital flows in the Japanese stock market show a clear pattern of regional divergence. Data from June show that North American investors, primarily from the US, were net buyers of Japanese equities to the tune of 600 billion yen; meanwhile, European investors who traditionally favor value strategies were net sellers of 1.5 trillion yen during the same period, underscoring sharply divergent directions.

The latest exchange data from mid-July further show that foreign investors had a net sell-off of 286 billion yen in cash equities, while domestic retail investors and local financial institutions had net purchases of 407 billion yen and 64 billion yen, respectively—effectively absorbing foreign sell orders and highlighting the supportive role of Japanese domestic capital in the market.