Improvement in macro outlook after US-China trade truce Goldman Sachs raises target for Japan's Topix index to 2900 points

Goldman Sachs has raised its 12-month target for the Japan Topix index from 2775 points to 2900 points, and increased its full year earnings growth forecast for 2025 from -1% to 2%. In addition, strategists have upgraded their rating on the household appliances and precision instrument sectors from neutral to overweight. Following the announcement of temporary tariff reductions between China and the US, the Topix index has risen for 13 consecutive trading days as of May 13. Goldman Sachs' adjustment aligns with this strong upward trend. However, investors remain cautious about the ongoing trade negotiations between the US and Japan. As of the time of writing, the Topix index is at 2740.11 points, with a relatively stable trend. Strategist Bruce Kirk and others wrote in a report on May 18: "Despite uncertainty surrounding the scope and impact of US-Japan trade negotiations, macroeconomic prospects and risk environment have significantly improved since our downward revision of expectations on April 6." Goldman Sachs had initially lowered its forecasts for the Topix index for the 3-month and 12-month periods in April due to concerns about trade policy uncertainty. At that time, the Topix index experienced a technical correction, and the Japanese blue-chip Nikkei 225 index subsequently entered a bear market. Since then, both indices have rebounded and regained all the lost ground following Donald Trump's declaration of "reciprocal tariffs." According to data from the Japan Exchange Group, as of May 9, foreign investors have been increasing their holdings of Japanese stocks for six consecutive weeks, marking the longest continuous buying streak since February 16, 2024. Japanese exporters such as Toyota and Nintendo have made significant contributions to the Topix index's gains, and bank stocks have also performed well. Export trade accounts for the largest proportion of Japan's GDP composition, with both China and the US being the largest export markets for Japanese goods. Therefore, the significant easing of tensions in the US-China trade war and the resulting improvement in economic growth expectations are expected to provide a boost to Japan's export economy. Kelvin Leung, portfolio manager at Robeco in Hong Kong, stated that the positive trade consensus between China and the US has greatly increased the likelihood of a trade agreement between Japan and the US. However, he also added: "I am more concerned about the overly optimistic sentiment in the Japanese market. From the level of the index, it seems that the market expectations are ahead of the actual situation."