Japan Equity Strategy: Raise year-end estimates: Surprising rally; stock concentration near historical highs

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Japan Equity Strategy: Raise year-end estimates: Surprising rally; stock concentration near historical highs

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Japan Equity Strategy

Raise year-end estimates: Surprising rally;

stock concentration near historical highs

Investment Strategy

23 June 2026

New year-end estimates: 4,400 TOPIX, 76,000 Nikkei 225 Investment Strategy

We raise our year-end estimates for TOPIX to 4,400 and Nikkei 225 to 76,000 (from Japan

4,200 and 67,000, respectively). We expect Nikkei 225 to rise to as high as 80,000 by Masashi Akutsu >>

the year-end. The main drivers are stronger-than-expected expansion in AI demand and a Strategist

BofAS Japan

higher probability of the Strait of Hormuz remaining open. Growth in ROE is a point to +81 3 6225 7754

watch. Previously, margin improvement drove ROE higher, but leverage expansion masashi.akutsu@bofa.com

accompanying a recovery in the manufacturing cycle should take over that role. Tetsuhiro Tokuyama >>

Strategist

+81 3 6225 8499Stock concentration near highs: Caution into Jul-Sep tetsuhiro.tokuyama@bofa.com

On the other hand, concentration in stock selection has reached historical levels and we

believe caution is warranted in Jul-Sep. When we classify stocks by beta and measure

the standard deviation of each group's 200-day cumulative returns, the standard

deviation has risen sharply. The latest reading slightly exceeds the peaks seen during the

2013 taper tantrum and the post-pandemic growth rally in 2021, and is comparable to

the peak following the injection of public capital into Resona Bank in 2003. Over the

past 30 years, only the dot-com bubble in 2000 and the peak of the global financial crisis

(GFC) in 2008 had higher levels than now.

Of course, a sharp rise in the standard deviation does not necessarily imply a