CITI SEES NIKKEI HITTING 90,000
Japanese equities had a strong month and a very strong second quarter and analysts at Citi believe there's more to come.
The Nikkei 225 TVC:NI225 was up almost 6% last month, a decent month but an unremarkable rise compared to what went on before.
The index rose 37% over the quarter, smashing its previous biggest quarterly gain of 23% in 1995. Its biggest quarterly rise during the Japanese asset price bubble between 1986 and 1990 was a meagre 22% gain in the first quarter of 1988.
A reminder that after the crash in 1990, the Nikkei 225 didn't reach a record again until 2024, some 34 years later.
Even with this historic quarterly rise, Citigroup analyst Ryota Sakagami has retained his bullish stance on Japanese equities and expects further upside, based on three reasons:
Japanese companies’ smooth price pass-throughs leading to strong earnings and margin improvements
Margin improvements driving higher Return on Equity that supports valuation re-ratings for Japanese stocks
Abundant global liquidity creating favourable conditions for equity inflows
"While the pace of tech stock gains in 2026 has been extremely rapid, raising concerns of a bubble among some observers, EPS forecasts for the sector are also being revised upward at a rapid pace," Sakagami says.
Citi has upped its Nikkei 225 forecast to 90,000, implying a near 28% increase from its current level.
Yet there are risks.
"The fundamental driver of Japanese tech companies' earnings improvements is the surge in global data centre investment, and any correction in data centre investment would force adjustments in Japanese corporate earnings," Sakagami notes.
"However, at this point, while hyperscalers may moderate the pace of capex increases, the probability of actual capex cuts remains low. If some hyperscalers decelerate capex or maintain current investment plans, we could see temporary tech stock corrections."