A rally in Japanese stocks significantly slowed after the first quarter of 2024, with the Nikkei 225 index struggling to stay below record highs. However, analysts at Goldman Sachs remain optimistic about the market’s prospects.

The Nikkei 225 surged to a record high of 41,087.75 points in the first quarter. Since then, the index has stagnated, remaining well below the 40,000-point mark due to concerns over a weak Japanese yen, a sluggish economy, and low consumer spending.

Despite strong earnings in the March quarter, Japanese companies provided a somewhat disappointing earnings outlook for the upcoming quarters. While this posed some short-term challenges, Goldman Sachs analysts believe that recent declines in share prices could be offset by optimism about potential upward revisions in earnings guidance.

“Investors familiar with the Japanese equity market know that initial guidance from Japanese corporates tends to be conservative,” Goldman Sachs analysts noted.

They suggested that the negative reaction to conservative guidance likely stemmed from new investors who entered the Japanese market over the past year. The strength of Japanese stocks had attracted a significant influx of foreign investors.

Goldman Sachs analysts also expressed optimism about recent changes in corporate governance structures revealed during quarterly results.

They highlighted the “meaningful increase” in share buyback announcements as particularly significant, presenting added value for investors.

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