Goldman Sees Yen in Sweet Spot for Global Buyers of Japan Stocks

(Bloomberg) -- The yen’s current level versus the dollar is positive for overseas investors to buy Japanese stocks, said Bruce Kirk, chief Japan equity strategist at Goldman Sachs Group Inc.

He sees only a limited risk of the currency — which traded around 157.13 to the greenback on Tuesday in Tokyo — weakening beyond 160, given the likelihood this would trigger some form of intervention by Japanese authorities.

That offers a sweet spot for overseas funds to make stock purchases relatively cheaply now, with a reduced chance of their dollar value falling later because of yen depreciation. It also brings some opportunity to make foreign exchange gains if Japan’s currency strengthens, according to Kirk.

While Japanese equities have recovered much of their losses since the August rout, many overseas funds have stayed on the sidelines. Their return could provide a much needed boost for the Topix to reclaim its all-time high in 2025.

Goldman’s 12-month target for the Topix index is 3,100, versus its close of 2726.74 on Monday. That compares with 2,900 for UBS Securities Japan and 3,000 for JPMorgan Chase & Co.

“It was quite natural for foreign investors to take a step back from Japan,” Kirk said in an interview.

In his view, the resilience of US stocks in the face of political uncertainties lessened the incentives for overseas investors to return to the Japanese market.

“Now that we’ve gotten through that, we are starting to see foreign interest in Japan pick up again,” said Kirk.

His team expects banks and other financial firms to outperform in 2025 against the backdrop of share buybacks, unwinding of cross shareholdings and interest rate hikes from the central bank.

Activist investors who are collaborating more with companies to unlock value will also support the market, in his view.

He added that Goldman has been receiving requests to screen companies for potential to tap large unrealized gains in their real estate holdings.