Japan Equity Strategy: FY results: Raise year-end forecasts on AI boom; beware of short-term pullback

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Japan Equity Strategy: FY results: Raise year-end forecasts on AI boom; beware of short-term pullback

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Japan Equity Strategy

FY results: Raise year-end forecasts on AI

boom; beware of short-term pullback

Investment Strategy

18 May 2026

Revise year-end forecasts: 4,200 for TOPIX, 67,000 for Investment Strategy

Nikkei 225 Japan

Full-year results were solid, and guidance was not as weak as feared. Many companies Masashi Akutsu >>

Strategist

either did not factor in the impact of the Strait of Hormuz closure in their guidance or BofAS Japan

assumed it would be limited, but sectors directly affected by the closure have been +81 3 6225 7754

masashi.akutsu@bofa.com

weakened. However, there was a remarkable increase in profits in growth industries,

Tetsuhiro Tokuyama >>

such as electronics, machinery, and banks, and as long as these sectors are doing well, Strategist

we believe a sharp deterioration in overall earnings can be avoided. BofAS Japan +81 3 6225 8499

tetsuhiro.tokuyama@bofa.com

We raise our year-end forecasts for Japanese equities. We raise our TOPIX forecast to

4,200 and Nikkei 225 forecast to 67,000 (previously 4,100 and 61,000, respectively). We

factor in Japan’s industrial structure advantage of providing essential semiconductor

manufacturing equipment (SPE), components, and materials in the AI supply chain. We

note the multilayered catalysts for Japanese equities amid ongoing inflation and

corporate reforms.

AI front runners: Speed correction or regime change from

June?

AI stocks are ahead of the pack in terms of stock selection. AI stocks offer high beta,

and in light of sharp recoveries in the beta factor in the past, we believe (1) high-beta

stocks have significant upside potential, and (2) the initial phase of a sharp recovery has