Japanese Stocks Outlook

Overview
Japanese stocks have recently underperformed global counterparts amid political uncertainty and an unclear Bank of Japan (BOJ) outlook. However, Citi analysts find them attractively valued.

Market Rally Potential
Citi forecasts a rally for Japanese stocks by year-end, driven by solid earnings, a weak yen, and economic resilience. Valuations align with historical averages, making Japanese stocks appealing compared to global markets.

Economic Factors
Lower global interest rates and a softer U.S. economic outlook are expected to support Japanese stocks. Despite potential earnings slowdown, a year-end rally remains likely.

Nikkei 225 Performance
Japan’s Nikkei 225 index hit a record high over 42,000 points in July but has faced challenges since, particularly with BOJ interest rate hikes.

Political Landscape
The ruling Liberal Democratic Party lost its parliamentary majority in the recent elections, complicating policy enactment. This political shift has made stocks fluctuate but also increased optimism after the recent Trump electoral win, affecting the yen negatively.