Goldman Sachs has increased its 12-month price target for the TOPIX index from 4200 to 4400, suggesting an approximate 11% upside from current levels. This revision is based on stronger-than-expected Japanese corporate earnings season, sustained net foreign capital inflows, and robust shareholder return momentum.
According to the firm's latest Japan Weekly Strategy report, analysts Bruce Kirk and Julius Chan have raised their earnings per share (EPS) growth forecasts for fiscal years 2026 and 2027 to +11% each, up from prior estimates of +7% and +11% respectively. They have also introduced a new forecast of +9% EPS growth for FY28. Concurrently, they have set 3-month and 6-month price targets of 4100 and 4200 points, representing potential gains of 4% and 6% from the current index level.
At the time of the report's publication, the TOPIX was trading at 3957.17 points, having risen 1.7% for the week. The Nikkei 225 index saw a more significant gain of 4.7% over the same period, reaching 66329.50 points. Goldman Sachs has maintained its target forward price-to-earnings (P/E) ratio at 17.5x and extended the forecast period for its 12-month target from March 2027 to June 2027.
Earnings Forecasts Revised Upward, Valuation Room for Improvement
A key driver behind the target price increase is the stronger-than-expected full-year earnings season in Japan, which has led to a notable recovery in the earnings revision index. Goldman Sachs projects cumulative EPS growth for the TOPIX of 33% over the three fiscal years from 2026 to 2028, with specific EPS estimates of 224 yen for FY26, 248 yen for FY27, and 270 yen for FY28.
From a valuation perspective, the TOPIX currently trades at a forward P/E ratio of about 16.7x, which remains below the peak of 17.5x seen earlier this year in February. That peak occurred following Prime Minister Takaichi's victory in the lower house election, before the ratio contracted to around 15.0x due to escalating tensions in the Middle East. Goldman Sachs believes the target multiple of 17.5x is justified given the significant improvement in both the foreign capital inflow environment and earnings revision prospects.
The firm's USD/JPY exchange rate assumptions for FY26 to FY28 are 157, 154, and 150 respectively, with the expectation of a gradually strengthening yen also providing support for the earnings forecasts.
Sustained Net Foreign Buying Provides Strong Capital Support
Capital flow data indicates a strong trend of foreign investment entering Japanese equities. Since April 2025, cumulative net foreign inflows have reached 16 trillion yen. According to the latest data from the Tokyo Stock Exchange (TSE), for the week of May 18-22, foreign investors were net buyers of 46.4 billion yen worth of cash stocks in the TSE Prime market. In contrast, individual investors and domestic institutions were net sellers of 14.5 billion yen and 4.7 billion yen, respectively.
The data shows that the scale of foreign inflows following the recent lower house election is historically significant, comparable to inflow cycles after major political events in 2012 and 2017. Furthermore, while global active funds have been increasing their allocation weight to Japanese stocks, they remain underweight overall, indicating potential for further increases in the future.
Shareholder Returns Hit Record High, Buyback Momentum Continues
Regarding corporate shareholder returns, data shows that the total shareholder return for TOPIX constituent companies in FY2025 reached 43 trillion yen, with the total payout ratio improving year-on-year. As of May 28, 2026, the volume of share buybacks announced for the current fiscal year is also at a historically high level for this period, continuing the trend of improving returns driven by enhanced corporate governance in recent years.
In terms of sector allocation, Goldman Sachs maintains an overweight stance on Machinery, IT & Services, Banks, Electrical Equipment & Precision Instruments, Steel & Non-ferrous Metals, Construction & Materials, Non-bank Financials, Materials & Chemicals, Trading Companies & Retail. It maintains an underweight stance on Electric Power & Gas, Foods, Pharmaceuticals, Transportation & Logistics, Automobiles & Auto Parts, Energy Resources, and Real Estate.
Global Comparison: Japanese Equities Offer Prominent Upside
In a comparison of price targets for major global equity indices, Goldman Sachs's projected 12-month gain for the TOPIX (11%) stands out. In contrast, the firm's 12-month target for the S&P 500 is 8300 points, implying about 10% upside. Its target for the Euro Stoxx 600 is 625 points, roughly flat with current levels, while its target for the MSCI Asia Pacific ex-Japan index is 990 points, implying about 12% upside.
It is noteworthy that Goldman Sachs also raised its S&P 500 target to 8000 points earlier this week, based on a target forward P/E of 21x. Regarding earnings growth forecasts, the firm's projection for TOPIX FY26 EPS growth (+11%) is slightly below the market consensus (+13%), but its forecast for FY27 (+11%) is broadly in line with consensus (+12%). Overall, the earnings outlook has improved significantly from previous assessments.
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