Japanese equities rebounded strongly in April, but gains were highly concentrated; the 4Q earnings season will test conservative FY26 guidance

Overview

This report is Goldman Sachs' Japan Weekly Kickstart, with core content including feedback from a European client marketing trip, month-to-date performance of the Japanese equity market, a preview of the FY3/26 fourth-quarter earnings season, and a market dashboard. The report notes that the Japanese market has seen a strong rebound in April, but gains have been highly concentrated in Nikkei heavyweight stocks, AI/semiconductor-related stocks, and certain thematic sectors. European clients remain concerned about geopolitical risks, but continue to show strong interest in Japanese corporate governance reform, BOJ policy normalization, event-driven, and special-situation opportunities.

Core views

The report's core views are: first, the short-term rebound in Japanese equities has been strong, but market breadth is limited, with the Nikkei outperforming TOPIX in connection with net buying of Japanese equities by U.S. funds and a preference for AI/semiconductors; second, the 4Q FY3/26 earnings season is about to begin, and Goldman Sachs expects more positive than negative surprises in 4Q results; third, FY26 corporate guidance may be more conservative than consensus in an uncertain environment, but because the market already expects this, it may not trigger a further broad decline in TOPIX; fourth, foreign investors have once again become an important marginal source of buying in Japanese equities, while domestic retail and institutions were net sellers in the latest week.

Analysis framework

The report combines client marketing feedback, attribution of index performance, sector and thematic performance, TSE investor-category trading flows, earnings announcement schedules, top-down TOPIX earnings forecasts, valuation metrics, and strategy basket performance to form a weekly strategy view on the Japanese equity market. The analytical focus is not on single-company fundamentals, but on market structure, thematic crowding, earnings-season catalysts, and fund flows.

Methodology notes

• Market strategyIndex performance attribution

  Break down the month-to-date performance of the Nikkei and TOPIX into contributions from the top 5, top 10, top 20, top 50, and other stocks to determine whether the rebound is being driven by a small number of heavyweight names.

  The report shows that the Nikkei's top 10 contributors accounted for nearly 75% of the index gain with about 40% of starting-month weight, indicating that the market rebound is highly concentrated and that index gains do not fully represent a broad-based market improvement.

• Thematic analysisAI/semiconductor contribution analysis

  Compare the contribution of AI/semiconductor-related stocks to TOPIX month-to-date performance with their starting-month index weight.

  These stocks contributed more than 50% of TOPIX month-to-date performance, but their starting-month weight was only 19%, indicating that the AI/semiconductor theme has had a significantly amplified effect on short-term Japanese market performance.

• Earnings forecastTop-down earnings forecast versus consensus comparison

  Compare Goldman Sachs' top-down TOPIX earnings growth forecasts with bottom-up market consensus.

  This framework is used to assess whether there is upside or downside risk to FY2025 and FY2026 earnings expectations and to help judge the market impact of 4Q earnings and FY26 guidance.

• Fund flowsTSE investor-category net trading analysis

  Break down TSE Prime cash equity net buying and selling by retail, domestic institutions, and overseas investors.

  The latest weekly data show that retail and domestic institutions were net sellers, while overseas investors were net buyers, supporting the report's view that marginal foreign buying has strengthened.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TOPIX

  Core covered index and strategy target

  Strengths

  Foreign investors have returned as net buyers, while corporate governance reform and BOJ normalization continue to attract global capital; Goldman Sachs provides 3/6/12-month targets of 3,800/4,000/4,200.

  Weaknesses

  FY26 corporate guidance may be conservative and below consensus, and earnings revision risk still needs to be monitored.

  Comparison

  Compared with the Nikkei, TOPIX has risen less since April, with broader market representation but short-term underperformance versus the Nikkei, which has been driven by heavyweight tech and semiconductor stocks.

  Risks

  Geopolitical uncertainty, supply chain disruptions, conservative guidance, earnings downgrades, and a reversal of foreign inflows.

• Nikkei 225

  Short-term performance-leading index

  Strengths

  Up +14.5% since April, with the Nikkei/TOPIX ratio rising above 15.5x, close to historical highs.

  Weaknesses

  Gains are highly concentrated, with the top 10 contributors accounting for nearly 75% of the index gain.

  Comparison

  Clearly outperforming TOPIX, typically associated with increased net buying of Japanese equities by U.S. funds.

  Risks

  If AI/semiconductors and a small number of heavyweight stocks correct, the index may face significant concentration risk.

• AI/semiconductor-related Japanese stocks

  Primary thematic driver

  Strengths

  Have contributed more than 50% of TOPIX performance month-to-date, supported by U.S. fund preferences and the global AI theme.

  Weaknesses

  Contribution is significantly above index weight, suggesting possible crowding in the trade.

  Comparison

  Performance is stronger than that of the broader TOPIX constituents and most traditional sectors.

  Risks

  Valuation pullback, semiconductor cycle volatility, and weaker U.S. fund risk appetite.

• Japanese financial stocks

  One of the sectors emphasized in client marketing discussions

  Strengths

  BOJ normalization is a key focus for European clients, and rate normalization may improve earnings expectations for financial stocks.

  Weaknesses

  There is still uncertainty over the policy pace and yield curve changes.

  Comparison

  Compared with AI/semiconductors, the investment case for financials depends more on macro policy and the rate path.

  Risks

  BOJ policy disappointing expectations, market volatility, credit risk, or regulatory changes.

• Japanese stocks related to corporate governance and event-driven themes

  Opportunity set attracting increased European client interest

  Strengths

  After positive minority shareholder outcomes in the Toyota Industries TOB, event-driven and special-situations clients have increased demand for specific Japanese opportunities.

  Weaknesses

  These opportunities usually depend on corporate actions, governance progress, and deal execution, with large stock-specific differences.

  Comparison

  Compared with index beta, event-driven opportunities depend more on company-level catalysts.

  Risks

  Deal failure, governance reform progressing more slowly than expected, or AGM/MTP updates disappointing expectations.

Key data

• Latest TOPIX level3,760.81 (+0.6%)Market data on the report front page.
• Latest Nikkei 225 level58,475.90 (+2.7%)Market data on the report front page.
• TOPIX 3/6/12-month targets3,800 / 4,000 / 4,200Goldman Sachs targets disclosed in Exhibit 10.
• TOPIX performance since April+7.5%Month-to-date rebound as of the report's reference point.
• Nikkei performance since April+14.5%The Nikkei has significantly outperformed TOPIX.
• Impact of Nikkei top 10 contributorsAbout 40% starting-month weight, contributing nearly 75% of the index gainShows gains were highly concentrated.
• Contribution from AI/semiconductor-related stocksContributed more than 50% of TOPIX month-to-date performance, with only 19% starting-month weightShows strong theme-driven performance.
• Peak of 4Q FY3/26 earnings announcementsMay 8 to May 15, 2026Announcement schedule for companies with March fiscal year-end.
• Net trading by individual investors-¥785bnTSE data, TSE Prime cash equities from April 6 to 10.
• Net trading by domestic institutions-¥302bnTSE data, TSE Prime cash equities from April 6 to 10.
• Net trading by overseas investors+¥1.6tnTSE data, TSE Prime cash equities from April 6 to 10.
• Better-performing sectorsCommunications、Electrical MachineryTop sectors listed on the report front page.
• Weaker-performing sectorsTrading/Wholesale、ConstructionBottom sectors listed on the report front page.

Impact & implications

For investors, the report suggests that short-term sentiment and fund flows in Japanese equities have improved, with support especially from foreign investors, AI/semiconductors, corporate governance, and event-driven themes; however, because gains are highly concentrated, strength at the index level may mask insufficient market breadth. The upcoming 4Q earnings season could be a key window for testing earnings resilience and management FY26 guidance. If FY26 guidance comes in clearly below consensus but in line with market expectations, the impact may be limited; if foreign buying continues and is coupled with governance reform, M&A, and AGM catalysts, it could continue to support a rerating of Japanese equities.

Risks

• Geopolitical concerns have not disappeared and may affect global risk appetite and Japan export-related stocks.
• FY26 corporate guidance may come in materially below market consensus; if it falls below the conservative expectations already priced in by investors, it could trigger earnings downgrade pressure.
• The April rebound has been led by a small number of Nikkei heavyweight stocks and AI/semiconductor-related stocks, and limited market breadth increases pullback risk.
• Supply chain disruptions may make corporate guidance this year more conservative than the historical median surprise level.
• If foreign net buying reverses, it may weaken the Nikkei's outperformance versus TOPIX and the momentum of the Japanese market.
• Domestic retail and institutions have recently been net sellers, indicating that local capital has not yet formed a unified buying force.

What to watch

• The peak of 4Q FY3/26 earnings announcements from May 8 to May 15.
• The gap between FY26 corporate guidance and market consensus, as well as management commentary on supply chains and macro uncertainty.
• Whether TOPIX can advance toward the 3,800, 4,000, and 4,200 targets.
• Whether the Nikkei/TOPIX ratio can remain above 15.5x and approach or break historical highs.
• Whether AI/semiconductor-related stocks continue to expand their contribution to TOPIX and Nikkei performance.
• TSE investor-category fund flows, especially whether net buying by overseas investors continues.
• Catalysts related to corporate governance reform, MTP updates, AGMs, M&A, and TOB events.
• The BOJ normalization process and its impact on financial stocks and Japan's overall valuation.