Bank of America has raised its year-end forecasts for Japan’s major stock indexes, buoyed by expectations of expansive fiscal policy and political stability following Sanae Takaichi’s appointment as the new Liberal Democratic Party (LDP) President.
The bank raised its 2025 target for the Nikkei 225 to 49,000, up from a prior estimate of 45,000, and lifted its forecast for the TOPIX to 3,300, compared to its previous 3,200 projection. According to analysts cited by BofA, sustained market momentum could see these benchmarks climb as high as 50,000 and 3,370, respectively.
The Nikkei 225 settled at 48,580.44 points on Thursday, October 9, 2025. Meanwhile, the Topix closed at 3,257.77 points.
BofA noted the transition in political leadership marks an important move away from the fiscal discipline of the Ishiba administration toward growth-centric, reflationary measures under Takaichi. The bank highlighted that price-to-earnings ratios have risen to 15.7 times, describing it as close to the upper bound of historical norms but still supported by robust profit outlooks.
The bank predicted that 12-month forward earnings per share for the TOPIX are on track to keep increasing, anticipating profit growth of 13.5% for the next fiscal year. Despite cautioning that equities could face corrections after a sharp rally, BofA remains positive for the medium term, underpinned by expectations of unexecuted share buybacks totaling approximately 6.5 trillion yen, a likely supplementary budget, and prospective tax reforms—all factors that could lend support if market volatility rises.
BofA outlined a preference for equities tied to expected policy initiatives from Takaichi’s administration, namely sectors such as defense, cybersecurity, nuclear energy, and construction and real estate companies likely to benefit from domestic inflation trends. The bank also maintained a selective overweight position on artificial intelligence hardware, nonferrous metals, and industrial electronics.
Still, BofA cautioned investors about significant risks, including a potential rapid weakening of the yen—which could spark currency intervention—premature interest rate increases by the Bank of Japan, coalition talks between the LDP and Komeito, and surprise inflation readings from the United States.
At her post-election briefing, Takaichi underscored a focus on economic security, emphasizing major investments in energy and defense infrastructure that would necessitate substantial financing. Kuroda noted that Takaichi plans to prioritize revitalization across Japan’s regions, a strategy that could heighten demand for the specialized expertise of regional banks. After an extended period of negative interest rates, the banking sector has adapted, building business models that reduce dependence on domestic lending margins.
AloJapan.com