Investing.com — Japanese stocks are trading flat for the year to 2024 after paring strong gains last year, with BofA analysts noting that much of the downside in the domestic market may have been sold off.
The index was trading flat so far in 2025 after adding nearly 20% last year, with BofA analysts noting that the index responded well to the inauguration of US President Donald Trump, especially if he did not impose trade tariffs as feared.
“We believe this represents the first step towards market prices at the end of bad news following the negative impact on financial conditions from the jump in long-term US yields from the end of December 2024,” BofA analysts said in a note.
However, markets remained uncertain about the near-term outlook for tariffs, given that Trump threatened 10% tariffs against China and 25% tariffs on Canada and Mexico. But BofA expects clarity on payments to drive more bets if the bad news is over.
BOJ rate hike already priced in, BofA says
BofA noted that a strong yen and fears of an interest rate hike by the Bank of Japan in January could contribute to Japanese markets.
But BofA believes the rate hike is priced in by the market, with futures showing a more than 90% chance of a hike.
BofA noted that if the BOJ raises rates now, the market may take the view that further increases are unlikely until after the Upper House elections later this year.
“The market may conclude after the BoJ's January meeting that the factors that cause it to be absent are out for now,” BofA analysts said.
The investment bank also focused on Japanese stocks exposed to insiders and outsiders in the niche based on the uncertain economic outlook.
But BofA noted that “a growing sense that bad news is valued” may make the stock of the quality bicycle appear more attractive, and such a trend may be strengthened by the return of foreign investors to Japan.