Japan equity strategy: 2025 outlook

Investing.com– Japanese stocks clocked a positive 2024, with the Nikkei benchmark hitting a series of record highs as the Bank of Japan began normalizing policy and private consumption began picking up from years of stagnation.

Sweeping corporate reforms also drew foreign capital into Japan, as more companies began offering stronger shareholder returns amid robust earnings. 

Bernstein analysts said that 2025 was also likely to be constructive for Japanese stocks, with domestically-oriented sectors likely to serve as some of the best exposure to Asia amid heightened trade tensions under U.S. President-elect Donald Trump. 

Global investor positioning in Japan also remains relatively light, opening the door for more potential gains. 

“We maintain our constructive view on Japan equities as the multi-year bull cycle remains intact led by the power of 4Rs (Reform, Restructuring, Reflation and Reshoring),” Bernstein analysts wrote in a note. 

The brokerage said it favored stocks with domestic exposure, highlighting a bullish outlook for healthcare equipment and services, consumer durables and apparels, media, energy, household goods, financials and retail stocks. 

On the other hand, Bernstein expects headwinds for food and staples retailing, transportation, telecommunications and utilities. 

The added 19.2% in 2024, ending about 3,000 points below record highs hit earlier in the year. While the index did clock strong gains in the first half of 2024, it was hit by a mix of uncertainty over Japanese interest rates, a muddled political outlook and uncertainty over U.S. policy under Trump. 

Bernstein said that Japanese exporters have traditionally been a focus point for global investors, given their large market share in sectors such as electronics and automobiles.

But this trend is expected to change, necessitating a potential shift into more domestically exposed sectors. 

A key driver of this trend is a pick-up in private consumption, as spending improved in the wake of bumper wage hikes seen in early-2024. Japanese labor unions are expected to negotiate even more wage hikes in 2025.