Morgan Stanley and UBS Lower Japanese Stock Targets Amid Strong Yen and U.S. Recession Fears

Morgan Stanley analysts have joined UBS in lowering their year-end targets for major Japanese stock indices due to the strengthening yen. JPMorgan's Japanese securities strategists, including Rie Nishihara, now predict that the Topix Index will reach 2,700-2,800 points by year-end, down from an earlier estimate of 2,950 points. They also forecast the Nikkei 225 Index, which is dominated by tech stocks, to hit around 39,000-40,000 points, lower than the previous prediction of 42,000 points. Both indices had surpassed earlier projections and peaked in early July before plunging into a bear market. Concerns over the stronger yen and rising recession risks in the United States were highlighted in a JPMorgan report released on Friday. This sentiment was echoed by UBS strategist Nozomi Moriya, who had previously mentioned the risk posed by exchange rates. "Given that market volatility may remain elevated for some time, we will continue to evaluate what we see as the appropriate level for the Japanese market while also assessing the risk of a U.S. economic recession and U.S. market sentiment," Nishihara wrote. JPMorgan has also revised down its earnings per share growth forecast for Japanese stocks from around 8% to about 4%. Both JPMorgan and UBS are recommending sectors tied to domestic demand. This adjustment underscores the vulnerability of international markets to currency fluctuations and external economic pressures. As Japan's export-driven economy grapples with a stronger yen, companies may find their earnings impacted, prompting cautious investment strategies. Meanwhile, ongoing evaluation of the U.S. economic landscape suggests that external factors will continue to play a significant role in shaping Japan's stock market trajectory.