Japanese Stocks Set for 2025 Gains as Tariff Impact Remains Limited: BofA
Japanese stocks are poised for improved returns on equity (ROE) in 2025, according to a recent note by Bank of America (BofA). The brokerage highlighted limited effects from U.S. trade tariffs on China and a rebound in domestic growth as key factors driving this outlook.
While Japanese markets have seen a decline in recent weeks due to uncertainty surrounding U.S. policy under a Donald Trump administration, BofA expects this trend to reverse. The firm pointed to Japanese companies implementing share buybacks as a positive catalyst for the markets.
BofA anticipates rising corporate earnings, provided the yen remains stable, which should further boost ROEs. It also advised focusing on stocks benefiting from high inflation without being burdened by rising interest rates, as well as companies with solid corporate reforms and minimal exposure to Trump’s tariff plans.
Tariffs on China expected to rise, but Japan to see less impact
BofA predicts U.S. tariffs on China could increase significantly, reaching about 40% by late 2025 from current levels of around 20%. While this is expected to pressure the Chinese economy, Japanese stocks are less likely to face the indirect negative effects seen during Trump’s first term in 2018-2019.
The brokerage noted that the COVID-19 pandemic has reduced Japanese firms’ reliance on China and increased their dependence on the U.S. Additionally, the reduced economic interdependence between the U.S. and China has lessened Japan’s exposure to potential trade disruptions.
“We recognize tariffs on Chinese and Japanese exports as a risk for 2025, but the indirect impact on Japanese stocks should be smaller compared to 2018-19,” BofA analysts stated.
Domestic factors to support Japanese markets
Domestically, BofA highlighted several tailwinds for Japanese equities. Strong wage hikes anticipated from the upcoming Shunto labor negotiations are expected to boost private spending, providing further support for the economy and markets.
