Goldman Sachs Inc. lowered its short-term targets for Japan's benchmark stock index, citing escalating geopolitical risks and the impact of rising oil prices on the global economy.
The bank lowered its three-month and six-month targets for the TOPIX index to 3,900 and 4,100 respectively, from previous forecasts of 4,200 and 4,400. Its 12-month target remains unchanged at 4,300, indicating that analysts still expect long-term gains once current uncertainties subside.
The reduction reflects growing concerns about disruptions to global energy supplies following escalating tensions in the Middle East and the risk of prolonged restrictions in the Strait of Hormuz, a vital shipping lane for oil exports. Goldman Sachs Inc.'s commodities team now assumes approximately 21 days of reduced oil exports through the strait, compared to a previous estimate of around 10 days.
High oil prices could negatively impact the Japanese economy, which is heavily reliant on imported energy. Goldman Sachs Inc. said it lowered its earnings forecasts for TOPIX companies to reflect the impact of rising energy costs and slowing economic growth.
The bank lowered its earnings growth forecast for fiscal year 2026 for the index and also reduced its outlook for Japanese economic expansion. Economists now expect real GDP growth to be slightly weaker than previously anticipated, as higher oil prices increase input costs for businesses and put pressure on household spending.
However, Goldman Sachs Inc. noted that past geopolitical oil shocks suggest that much of the risk may already be priced into the markets. Historically, major disruptions to oil supplies have caused significant declines in stock markets, but the recent pullback in Japanese stocks has been more limited so far.
The market's performance was also uneven across sectors. Energy and shipping stocks were among the strongest performers during the recent volatility, benefiting from higher oil and shipping prices, while sectors linked to Chinese demand, financials, and some technology sectors lagged behind.
Despite short-term caution, Goldman Sachs Inc. affirmed that the long-term outlook for Japanese stocks remains constructive, with structural reforms, corporate governance improvements, and shareholder returns continuing to support valuations.
