Goldman Sachs’ latest report has raised its 12-month target for the Tokyo Stock Price Index (TOPIX) to 4,400, implying an upside of approximately 11% from current levels—among the highest in major global markets. This outlook is underpinned by a confluence of three key drivers: stronger-than-expected corporate earnings during Japan’s reporting season have led to significant upward revisions in EPS forecasts, with cumulative earnings growth projected to reach 33% over three years; net foreign inflows since April 2025 have already totaled JPY 16 trillion, reinforcing market liquidity; and corporate shareholder returns have hit record highs, with current valuations still offering room for further multiple expansion toward the target.
Goldman Sachs raised its 12-month target for the TOPIX from 4,200 to 4,400 points, implying approximately 11% upside from current levels, citing better-than-expected Japanese corporate earnings results, sustained net foreign inflows, and strong shareholder return momentum.
According to Zhui Feng Trading Desk, in its latest 'Japan Weekly Strategy Report,' Goldman Sachs analysts Bruce Kirk and Julius Chan revised their EPS growth forecasts for fiscal years 2026 and 2027 upward to +11% and +11%, respectively, from previous estimates of +7% and +11%. They also introduced a new FY28 EPS growth forecast of +9%, while setting 3-month and 6-month price targets at 4,100 and 4,200 points, representing potential upside of 4% and 6% from current levels, respectively.
As of the report's publication, the TOPIX stood at 3,957.17 points, up 1.7% for the week; the Nikkei 225 posted an even stronger weekly gain of 4.7%, closing at 66,329.50 points. Goldman Sachs maintained its target forward P/E ratio of 17.5x unchanged and extended the forecast horizon for its 12-month target from March 2027 to June 2027.
Upward revisions to earnings forecasts leave room for further valuation recovery
One key driver behind Goldman Sachs’ upward revision of its price target is the better-than-expected performance during Japan’s full-year earnings season, which has significantly lifted the earnings revision index. Goldman Sachs expects cumulative EPS growth for the TOPIX of 33% over FY26–FY28, with EPS projected at ¥224 in FY26, ¥248 in FY27, and ¥270 in FY28.
From a valuation perspective, the TOPIX currently trades at a forward P/E of approximately 16.7x, still below the peak of 17.5x reached in February this year. That valuation high followed Prime Minister Sanae Takaichi’s victory in the House of Representatives election, after which geopolitical tensions in the Middle East caused the multiple to contract to as low as 15.0x. Goldman Sachs believes the target multiple of 17.5x is justified, given the markedly improved environment for foreign inflows and earnings revisions.
The firm’s USD/JPY exchange rate assumptions for FY26 through FY28 are 157, 154, and 150, respectively, with the expectation of gradual yen strengthening providing additional support to earnings forecasts.
Sustained net foreign buying provides strong support on the funding side
Fund flow data shows robust foreign inflows into Japanese equities. Since April 2025, cumulative net foreign inflows have reached ¥16 trillion. According to the latest data from the Tokyo Stock Exchange (TSE), foreign investors were net buyers of ¥46.4 billion in cash equities listed on the TSE Prime Market during the week of May 18–22, while retail investors and domestic institutions recorded net outflows of ¥14.5 billion and ¥4.7 billion, respectively.
Data indicates that the scale of foreign inflows following this House of Representatives election stands out historically compared to post-election cycles in 2012 and 2017. Meanwhile, although global active funds continue to increase their allocation weight to Japanese equities, overall positioning remains underweight, suggesting further room for incremental allocation going forward.
Shareholder returns reach record highs, with continued momentum in buybacks
Regarding shareholder returns, data shows that total shareholder returns from TOPIX constituent companies for fiscal year 2025 amounted to JPY 43 trillion, with the aggregate payout ratio continuing to improve year-over-year. As of May 28, 2026, announced share repurchase volumes for the current fiscal year remain at historically high levels for the same period, extending the trend of enhanced returns driven by recent improvements in corporate governance.
Goldman Sachs maintains an overweight stance on sectors including machinery, IT and services, banks, electrical equipment and precision instruments, steel and non-ferrous metals, construction and materials, non-bank financials, raw materials and chemicals, trading companies, and retail, while underweighting utilities, food, pharmaceuticals, transportation and logistics, automotive and auto parts, energy and resources, and real estate.
Global cross-market comparison: Japanese equities offer among the highest upside potential
Based on 12-month price targets for major global equity indices, Goldman Sachs’ projected upside for the TOPIX (11%) stands out among major markets. By comparison, its 12-month target for the S&P 500 is 8,300 points, implying approximately 10% upside; its target for the STOXX Europe 600 is 625 points, roughly flat versus current levels; and its 12-month target for the MSCI Asia Pacific ex-Japan Index is 990 points, representing about 12% upside potential.
Notably, earlier this week Goldman Sachs also raised its S&P 500 price target to 8,000 points, based on a forward P/E ratio of 21x. In terms of earnings growth forecasts, its projection for TOPIX FY26 EPS growth (+11%) is slightly below the consensus estimate (+13%), but its FY27 forecast (+11%) closely aligns with the consensus (+12%), reflecting a markedly improved overall earnings outlook compared to previous expectations.