(Bloomberg) -- JPMorgan Chase & Co. strategists have joined their peers at UBS Group AG in lowering year-end targets for Japan’s key stock gauges because of the stronger yen.
The Topix is set to rise to 2,700-2,800, from 2,950 expected previously, according to strategists at JPMorgan’s Japan securities including including Rie Nishihara. They see the tech-heavy Nikkei 225 Stock Average around 39,000-40,000 at year-end, from 42,000. Both gauges peaked above the former targets in early July before plunging to bear markets.
JPMorgan cited concerns over the impact of the strengthening yen and increased risk of a US recession, in a note on Friday. That echoed the currency risks flagged by UBS strategists including Nozomi Moriya in a note at the end of last week.
The Japanese equity market has been in turmoil since last week after the Bank of Japan raised its benchmark interest rate and Governor Kazuo Ueda made hawkish remarks on the policy outlook. This triggered a sharp rally in yen, which spilled over negatively into stocks. Concerns over weakness in the US economy added to the downdraft that hit the Topix and Nikkei.
The yen traded around 147 to the dollar in Tokyo on Friday, versus a weak point of 161.95 at the beginning of July.
“As market volatility is likely to stay high for the time being, we will continue to review what we think is an appropriate level for Japan’s market while assessing the risk of a US recession and US market sentiment,” Nishihara wrote.
JPMorgan lowered its forecast for earnings per share growth for Japanese stocks to around 4% from about 8% previously. Both JPMorgan and UBS recommend stocks sectors tied to domestic demand.
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The Nikkei 225 and the Topix climbed on Friday as the yen held a small gain versus the dollar. The gauges remain down around 17% from their records reached last month.
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