Goldman Sachs says Japan rally still has legs after record TOPIX run

Goldman Sachs says the Japanese equity rally still has legs after the TOPIX hit a record high last week. The bank lifted its 12‑month TOPIX target to 4,400 from 4,200, implying more than an 11% upside from current levels. The upgrade follows a constructive full-year results season and an improving earnings outlook for Japanese companies, with earnings growth estimates for fiscal 2026 raised to 11% and fiscal 2027 also at 11% and 2028 at 9%. The firm maintains a forward P/E multiple of 17.5x, arguing that a rebound in foreign flows and revisions supports higher valuations.

Foreign investors have poured roughly ¥16 trillion into Japanese equities since April 2025, according to Goldman, supporting the rally. The bank also points to improving shareholder returns, with total shareholder returns by TOPIX companies reaching ¥43 trillion in fiscal 2025 and ongoing buyback announcements during the latest earnings season. It notes a more constructive backdrop for foreign flows and earnings revisions, arguing that a 17.5x forward multiple remains reasonable. Still, it cautions that geopolitical tensions and global growth uncertainty could cap gains, making continued earnings upgrades and capital returns crucial.