Since the end of July, the Nikkei 225 has held above ¥40,000 and rose to ¥43,714 in August. The head of Nomura Securities' Market Strategy Research Department explains who is buying Japanese stocks, as well as the factors and prospects for a continued rally.
Since the Japan-U.S. tariff agreement in late July, the Nikkei 225 has held above ¥40,000 and rose to levels approaching ¥44,000 in mid-August. The dollar-denominated TOPIX has also remained firm, with improved domestic supply-demand conditions cited as a factor rather than dependence on a weaker yen. This has prompted views that overseas investors' interest in Japanese stocks is reviving.
By trading session, gains during the daytime session have become more pronounced, with some observers saying the market is shifting to an environment less dependent solely on gains in U.S. stocks on the previous day. By sector, domestic-demand industries, including electric power and gas, real estate and energy resources, led the gains, while the banking sector also remained firm.
Factors cited as justifying the high valuations of Japanese stocks include the view that the short-term deterioration in earnings will be temporary, the relative attractiveness of equities amid fiscal expansion under inflation, and improved supply-demand conditions from share buybacks and tender offers. Share buybacks have expanded to approximately ¥31 trillion cumulatively, while tender offers have reached approximately ¥16 trillion.
The outlook is that upward revisions to earnings from the next fiscal year onward will support further gains in share prices. Under Nomura's assumed scenario, the Nikkei 225 could reach ¥42,000 at year-end 2025, ¥44,000 at year-end 2026 and approximately ¥50,000 in the second half of 2027.