Goldman Sachs Group Inc. raised its price target for Japanese shares for the sixth time this year on expectations the government will make progress on measures such as cutting corporate taxes and restarting nuclear reactors.
The brokerage boosted its 12-month outlook for the Topix index (TPX) to 1,450, 16 percent higher than yesterday’s close. Its previous forecast, set on May 17, was 1,400. Goldman Sachs now expects earnings per share to double in fiscal year 2014 compared with fiscal year 2012, strategists led by Kathy Matsui wrote in a report dated yesterday.
“Amid growing skepticism about Abenomics, we expect the government to make steady progress in critical areas during 2014,” the report said. “We expect corporate Japan’s confidence to improve in 2014, triggering both increased capex and higher wages, which should help offset the impact of the value-added-tax hike next April.”
Other areas where progress is expected include forging a deal on the Trans-Pacific Partnership free-trade agreement, reforming the agriculture sector, preparing for a new taxpayer identification system, and improving corporate governance, the report said.
The Topix plunged as much as 18 percent from this year’s high on May 22 through June 13 on bets the U.S. would taper stimulus and growing skepticism Prime Minister Shinzo Abe will be able to enact the necessary reforms to boost economic growth. The Topix has since recovered and was about 2.3 percent away from its May high as of yesterday’s close.
Abe last month said the government will raise the sales tax to 8 percent in April from the current 5 percent rate in a bid to rein in the world’s heaviest debt burden. He announced a 5 trillion yen ($49 billion) stimulus package on Oct. 1 to cushion the blow, which a Cabinet Office statement showed includes tax breaks for companies.
The prime minister wants to restart some nuclear reactors to drive economic growth. Japan’s regulator for the industry has no fixed schedule to complete safety checks at the country’s idled atomic plants, it said by e-mail on Nov. 14.
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