Japanese stocks have multiple positives! Goldman Sachs raises TOPIX target to 4,400 points, forecasting an 11% upside potential.

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Goldman Sachs has raised its 12-month target price for the TOPIX Index from 4,200 points to 4,400 points, which implies an upside of about 11% from current levels. The reasons cited are Japanese companies’ earnings season exceeding expectations, continued net foreign inflows, and strong shareholder return momentum.

According to Chasewind Trading Desk, in the latest “Japan Weekly Strategy Report,” Goldman Sachs analysts Bruce Kirk and Julius Chan have raised their FY26/27 fiscal year earnings per share (EPS) growth forecasts from +7%/+11% to +11%/+11%, and added a FY28 EPS growth forecast of +9%. At the same time, 3-month and 6-month target prices are set at 4,100 and 4,200 points, respectively, corresponding to 4% and 6% upside from current levels.

As of the report’s publication, the TOPIX stood at 3,957.17 points, up 1.7% on the week; the Nikkei 225 Index rose more sharply during the same period, up 4.7% to 66,329.50 points. Goldman Sachs maintains its target forward P/E ratio at 17.5x, and extends the target forecast period for 12 months from March 2027 to June 2027.

Profit Forecasts Raised, Valuation Still Has Room to Recover

One of the core drivers of Goldman Sachs’ target price hike is the material rebound in earnings forecasts, as Japanese companies’ annual results season exceeded expectations. Goldman expects TOPIX cumulative EPS growth of 33% over FY26-FY28, with FY26 and FY27 EPS at 224 yen and 248 yen respectively, and FY28 at 270 yen.

In terms of valuation, the current forward P/E of TOPIX is about 16.7x — still lower than the 17.5x level at its peak this February. At that time, TOPIX’s valuation peak followed Prime Minister Sanae Takaichi’s general election win, but P/E later contracted to 15.0x due to escalation in the Middle East. Goldman believes that the target multiple of 17.5x is reasonable as the environment for foreign capital inflows and the earnings revision outlook have both clearly improved.

The assumptions for USD/JPY exchange rates for FY26 to FY28 are 157/154/150, with the expectation that a stronger yen will support earnings forecasts.

Continued Net Buying by Foreigners Provides Strong Fund Support

Fund flow data show that foreign capital is strongly flowing into Japanese equities. Since April 2025, cumulative net foreign inflows have reached 16 trillion yen. According to the Tokyo Stock Exchange (TSE), in the week of May 18-22, net foreign buying of TOPIX Prime market cash stocks was 46.4 billion yen, while individual investors and domestic institutions net sold 14.5 billion yen and 4.7 billion yen, respectively.

The data show that post-election foreign inflows have stood out in history when compared with cycles after other important political events such as 2012 and 2017. Meanwhile, although global active funds have continuously increased their allocation to Japanese stocks, on the whole, Japanese equities remain under-allocated, meaning there is more room for further increases in the future.

Shareholder Returns Hit Record Highs, Buyback Momentum Continues

In terms of shareholder returns, data show that TOPIX constituent companies’ total shareholder returns for FY2025 have reached 43 trillion yen, with the payout ratio continuously improving year-on-year. As of May 28, 2026, the scale of share buybacks announced so far this fiscal year is also at a historical high for the period, continuing the recent trend of improved corporate governance boosting returns.

Goldman Sachs remains overweight in sectors such as machinery, IT & services, banks, electrical equipment & precision instruments, steel & nonferrous metals, construction & materials, non-bank financials, chemicals & raw materials, trading companies and retail. They are underweight on electric power & gas, food, pharmaceutical, transportation & logistics, autos & auto parts, energy resources and real estate.

Global Comparison: Japanese Equities’ Upside Ranks Among Top

Comparing target prices of major global indices, Goldman Sachs’ 12-month expected upside for TOPIX (11%) stands out among key markets. In contrast, the 12-month target for the S&P 500 is 8,300 points (about 10% upside); for the Euro Stoxx 600, the 12-month target is 625 points, roughly flat; for the MSCI Asia Pacific (ex-Japan) Index, the 12-month target is 990 points, implying about 12% upside.

Notably, Goldman also raised its S&P 500 target to 8,000 points earlier this week, based on a 21x target forward P/E. On EPS growth projections, the forecast for TOPIX FY26 (+11%) is slightly lower than consensus (+13%), while the FY27 forecast (+11%) is close to consensus (+12%), and overall earnings outlook is clearly improved from before.

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The above highlights are from Chasewind Trading Desk.

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