Investing.com– Japanese stocks have traded largely in a range so far in 2024 after posting strong gains last year, with BofA analysts noting that a number of negative factors for local markets may already be priced in.
The index has traded flat so far in 2025 after adding nearly 20% in the past year, with BofA analysts noting that the index has reacted positively to the inauguration of US President Donald Trump, especially given that he did not impose trade tariffs as expected. feared.
“We believe this represents the first step towards the market pricing in the end of bad news after the negative impact on financial conditions from a jump in US long-term yields from late December 2024,” BofA analysts said in a note.
Still, markets remained uncertain about the near-term outlook for tariffs, with Trump threatening 10% tariffs against China and 25% tariffs on Canada and Mexico. But BofA expects tariff clarity to prompt more bets that the bad news is over.
The BOJ interest rate hike has already been factored in, says BofA
BofA noted that a stronger yen and fears of an interest rate hike by the Bank of Japan in January likely limited gains in Japanese markets.
But BofA believes a rate hike — which it is — has been priced into the market, with futures signaling a more than 90% chance of a hike.
BofA noted that if the BOJ raises rates now, the market is likely to adopt the view that further increases are unlikely until at least after the Upper House elections later this year.
“The market may conclude after the BoJ meeting in January that the negative catalysts are out for now,” BofA analysts said.
The investment bank reiterated its focus on domestically exposed Japanese stocks and export niches based on an uncertain economic outlook.
But BofA noted that a “growing sense that bad news has been priced in” could also make quality cyclical stocks more attractive, with such a trend likely to be bolstered by a recovery in foreign investor inflows to Japan.
