Investing.com — Japanese stocks have traded largely range-bound so far in 2024 after posting strong gains last year, with Bank of America analysts noting that a slew of negative factors for local markets may have already been priced in.
The index has remained stable so far in 2025 after adding nearly 20% last year, as Bank of America analysts indicated that the index reacted positively to the inauguration of US President Donald Trump, especially in light of the fact that he did not impose trade tariffs as he had feared. .
“We believe this represents a first step toward the market pricing in an end to the bad news following the negative impact on financial conditions from the jump in long-term US yields since late December 2024,” Bank of America analysts said in a note.
However, markets remained uncertain about the near-term outlook for tariffs, given that Trump threatened to impose tariffs of 10% on China and 25% on Canada and Mexico. But Bank of America expects clarity on tariffs to prompt more bets that the bad news is over.
Bank of America says interest rate hikes by the Bank of Japan are already in place
Bank of America noted that the strength of the yen and fears that the Bank of Japan will raise interest rates in January are likely to limit gains in Japanese markets.
But Bank of America believes a rate hike – which is a reality – has been priced in in markets, with futures indicating a more than 90% probability of a rate hike.
Bank of America noted that if the Bank of Japan raises interest rates now, the market will likely adopt a view that further hikes are unlikely until at least after the Senate elections later this year.
“The market may conclude after the Bank of Japan meeting in January that the negative catalysts are over for now,” Bank of America analysts said.
The investment bank emphasized its focus on domestically exposed Japanese stocks and specialist issuers based on the uncertain economic outlook.
But Bank of America noted that “a growing sense that bad news is being priced in” could make high-quality cyclical stocks look more attractive, with the trend likely to be reinforced by a rebound in foreign investor flows into Japan.
