Daishin: "Downward Pressure Mounts on Japan's TOPIX... Retreat to 2,600 Expected"

Daishin Securities has predicted that, due to increasing downward pressure on Japan's TOPIX index, the index is likely to retreat toward the lower end of its current trading range at the 2,600 level for the time being.

Moon Namjoong, a researcher at Daishin Securities, stated in a report titled "Japanese Financial Market, Brief Entry into Risk-Off Phase" on May 19, "The box-range market that had become prominent since October last year is starting again," explaining the outlook.

The TOPIX index, a market capitalization-weighted index covering all common stocks listed on the First Section of the Tokyo Stock Exchange, stood at the 2,740 level as of May 16. Moon assessed, "Although the index rebounded from the April decline and approached the 2,800 level, renewed concerns over fundamentals such as the economy and corporate earnings are increasing downward pressure once again."

Specifically, he pointed out several factors: Japan's first-quarter gross domestic product (GDP) shrank by 0.2% compared to the previous quarter, marking negative growth for the first time in four quarters; consumer spending was significantly dampened by rising prices; the first-quarter GDP data precedes the imposition of tariffs by the United States, so the likelihood of continued negative growth in the second quarter is high. He also noted that an interest rate hike by the Bank of Japan (BOJ) is likely to be delayed beyond the initially expected July, and that the government is increasingly likely to introduce policies to stimulate domestic demand.

Moon also highlighted concerns over U.S.-imposed tariffs, stating, "Among 36 major listed companies that have disclosed the impact of U.S. tariffs, operating profit for the current fiscal year (April 2025 to March 2026) is expected to decrease by a total of 2.6 trillion yen." He added, "Of this, losses of 1.7 trillion yen are concentrated in seven automakers, including Honda (650 billion yen), Nissan (450 billion yen), and Toyota (180 billion yen)."

He continued, "Although the third round of tariff negotiations between Japan and the United States is scheduled for this week, the situation is different from that of the United Kingdom and China, which recently reached trade agreements with the U.S." He explained, "Japan maintains a substantial trade surplus with the United States, putting it at a relatively disadvantageous position in the negotiations." He added, "It will be difficult for the third round of tariff negotiations with the U.S. to proceed as Japan intends. For the time being, a risk-off mood is likely to prevail in the Japanese financial market, and the Japanese stock market is expected to retreat toward the lower end of its trading range (2,600 for the TOPIX index)."