Japan's Nikkei seen rising about 5% by year-end, shaking off Trump tariff impact: Reuters poll

A Reuters poll of 17 equity strategists forecasts the Nikkei to rise approximately 5% to 39,600 by year-end, driven by the anticipated clearing of U.S. trade policy uncertainties, a weak yen, low interest rates, and strong corporate earnings. While some analysts predict the Nikkei will surpass its all-time high by mid-2025, others foresee only marginal gains through 2026 due to persistent trade-related volatility; opinions are also divided on whether corporate earnings will exceed 2024's strong results, highlighting the dependence of market confidence on global trade clarity.

Analysis

The Nikkei share average is forecast by a Reuters poll of 17 equity strategists to reach 39,600 by end-December, an approximate 5% increase from its late-May close of 37,724.11, with projections extending to 40,875 by mid-2026 and 42,000 by end-2026. This moderately positive outlook is primarily contingent on the anticipated clarification of U.S. trade policies, which have historically triggered significant market volatility, including a 27% decline into a bear market and a separate 20% drop linked to tariff concerns. Supportive fundamental drivers include a persistently weak yen, which enhances the repatriated value of overseas corporate earnings, continued low domestic interest rates despite the Bank of Japan initiating a tightening cycle from a very low base, and expectations of strong corporate earnings. However, considerable uncertainty pervades the outlook, evidenced by divided analyst opinions on the likelihood of a market correction (seven of twelve deem it unlikely, five likely) and the trajectory of corporate earnings relative to 2024's strong performance, with an even split between forecasts of marginal growth and marginal decline. Nomura's revision of its corporate earnings growth forecast from +7% to -7% (later adjusted to -3%) following tariff announcements underscores the market's acute sensitivity to trade developments. While some strategists, such as IG's Tony Sycamore, project the Nikkei could reach a record 44,000 by end-2025, others like Oxford Economics' Norihiro Yamaguchi anticipate only marginal gains to 38,900 by end-2026 due to persistent trade-related volatility. The yen's status, despite a 14% recovery from a multi-decade low against the dollar, remains historically cheap, but the overall market tone is one of uncertainty pending greater global trade policy clarity.

Key Decisions for Investors

• Investors should closely monitor U.S. trade policy developments, as their anticipated clarification is a primary catalyst for the forecasted Nikkei upside, while remaining prepared for continued near-term market volatility.
• Given the divergence in analyst opinions on corporate earnings and the risk of a market correction, a balanced portfolio strategy is advisable, potentially favoring sectors that benefit from a weak yen and low interest rates but with an awareness of macroeconomic uncertainties.
• Long-term investors could position for potential new highs in the Nikkei by 2025-2026 should fundamental drivers such as strong earnings and a stable global trade environment materialize, but must weigh this against the current mixed signals and significant forecast disparities among analysts.