Japan stocks attract dip buyers as Asian investors shift strategy, says BofA

Investing.com-- Asian investors are showing increased interest in buying dips in Japanese equities, even as new entrants into the market decline, Bank of America (BofA) analysts said in a research note.

Following meetings with investors in Hong Kong and Singapore, BofA analysts noted a shift in focus from long-term structural themes to short-term market positioning, they said in a note.

While concerns over a U.S. recession and yen appreciation persisted, investors were surprised by the resilience of Japanese stocks, reinforcing a willingness to buy on market pullbacks, according to BofA.

Analysts highlighted that trade policy uncertainty has driven fund flows away from U.S., Japanese, Indian, and Taiwanese markets into underperforming European and Chinese equities. However, they believe the resolution of tariff-related concerns could restore confidence in Japan’s equity market.

The investment bank also sees potential for Japanese stocks to gain traction among overseas investors, provided macroeconomic uncertainty declines and corporate reforms yield improvements in wages and return on equity.

In the near term, BofA recommends prioritizing domestic demand sectors while selectively buying quality cyclical stocks on dips.

While market corrections may continue, BofA maintains a downside target of 13x price-to-earnings for Japan’s TOPIX index, with deeper corrections possible in case of a U.S. recession, analysts added.

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