Goldman Sachs stated that against the backdrop of a pullback in the U.S. stock market at the beginning of the year, the Japanese stock market has shown strong resilience this year. In the context of a comprehensive sell-off by overseas investors, domestic investors in Japan have become the main buyers, providing strong support to the market.
However, Goldman Sachs warned that investors should be cautious of two potential downside risks: U.S. tariff policies and fluctuations in the yen exchange rate. Tariffs on automobiles and key imported goods could lead to a 2%-7% decline in earnings per share for the Tokyo Stock Exchange Index, while a 10 yen appreciation of the yen would reduce earnings per share for the Tokyo Stock Exchange Index by 3.5%.
<h2>Japanese Stocks Show Strong Resilience</h2>
For bulls in the Japanese stock market, this year may have been a frustrating period. With cautious expectations regarding potential interest rate hikes by the Bank of Japan, the Japanese stock market has underperformed global markets. Due to market expectations that the Bank of Japan will further raise interest rates, along with uncertainties surrounding U.S. government policies and the U.S. economy, the Nikkei 225 Index fell below the lower limit of its range of 38,000 points in recent months, briefly dipping below 36,000 points during trading.
Nevertheless, the Japanese stock market has demonstrated considerable resilience. The Tokyo Stock Exchange Index (which better reflects the overall price trend of the Japanese stock market than the Nikkei 225 Index) has largely remained within the range of 2,700-2,800 since the beginning of the year.
Indeed, the Tokyo Stock Exchange Index has only risen 1.4% year-to-date, significantly lagging behind the 18% increase in the Chinese stock market and the 8% rise in European markets. However, considering that the S&amp;P 500 Index has fallen 10% since the end of February, and the yen appreciated by 12 yen against the dollar from mid-January to early March, the Tokyo Stock Exchange Index's maintenance of its range is surprising, especially given its historical correlation with the U.S. stock market and the dollar/yen exchange rate.
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<h2>Corporate Earnings and Domestic Investors Support the Market</h2>
Goldman Sachs indicated that domestic investors in Japan have played a crucial supporting role behind this.
Analysts have reported that since mid-July 2024, foreign investors have cumulatively net sold 11.2 trillion yen. This means that overseas investors have sold all 9.4 trillion yen worth of Japanese stocks purchased from early 2023 to mid-July 2024, plus an additional 1.8 trillion yen.
Despite net sales of Japanese stocks by foreign investors, the Tokyo Stock Exchange Index still rose by 1.2% during this period. The resilience of the Japanese stock market is particularly evident in its performance in dollar terms. Over the two months from mid-January to mid-March, the dollar-denominated return of the Tokyo Stock Exchange Index reached 11%.
Goldman Sachs noted that in the context of large-scale withdrawals by foreign capital, domestic retail investors and companies in Japan have become the main buyers supporting the market.
From the fall of 2024 to the end of the year, Japanese retail investors seem to have adopted a more cautious attitude towards the stock market. However, since the beginning of 2025, retail investors' attitudes towards the stock market have turned positive. During the market adjustment period that began in late February, the inflow of funds into domestic equity mutual funds accelerated.
** NISA account purchases increased by 9% year-on-year. Supported by rising stock prices and interest rates, Japanese household financial assets have been increasing, reaching a record 223 trillion yen by the end of December 2024.
One factor supporting the resilience of Japanese stocks is strong corporate performance. Since the third quarter earnings season, the upward revisions by sell-side analysts for Japanese stocks have exceeded downward revisions, leading to an increase in the earnings revision index. Among Japanese stocks, the upward revisions in earnings forecasts for banks/insurance and domestic industries are particularly significant.
<h2>Tariffs and Yen Appreciation May Become Obstacles</h2>
However, Goldman Sachs warns that despite the current strong earnings momentum, investors must consider the U.S. government's tariff policies.
Goldman Sachs estimates that potential tariffs on automobiles and key imported goods could reduce the earnings per share of the Tokyo Stock Exchange index by 2% to 7%, depending on the extent to which companies can pass on price increases to consumers.
In terms of exchange rates, a 10 yen appreciation of the yen against the dollar would reduce the earnings per share of the Tokyo Stock Exchange index by 3.5%. Compared to Goldman Sachs' current assumption of 155 yen per dollar, spot exchange rates of 152/150/145 yen could reduce the earnings per share of the Tokyo Stock Exchange index by 1.1%/1.8%/3.5%, respectively.
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The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at their own risk

Goldman Sachs pointed out that despite the pullback in the US stock market, the Japanese stock market has shown resilience with the support of domestic investors. Since mid-July 2024, foreign investors have net sold 11.2 trillion yen, but the Tokyo Stock Exchange index has still risen by 1.2%. Goldman Sachs warned to pay attention to the potential risks of US tariff policies and fluctuations in the yen exchange rate. Although Japanese stocks have underperformed compared to other markets, domestic funds have become the main support

- Goldman Sachs reports that the Japanese stock market has shown strong resilience amid a broader decline in U.S. stocks, supported by local investors as foreign investors sell off.  
- However, potential risks include U.S. tariff policies and fluctuations in the yen, which could reduce earnings per share for the Tokyo Stock Price Index by 2% to 7% and 3.5% for every 10 yen appreciation.  
- Despite these challenges, the Tokyo Stock Price Index has remained stable, reflecting a 1.2% increase since mid-2024, bolstered by strong corporate earnings and increased domestic investment.

Japanese stocks are no longer solely dependent on "foreign capital's mood"; domestic funds have become the biggest support this year