BofA Global Research has updated its predictions for Japan’s Topix and Nikkei Stock Average for the end of the year. This update is influenced by factors such as the U.S.-Japan trade agreement, expected fiscal measures in Japan, and favorable market conditions. BofA’s strategists recognize that cyclical stocks might face some challenges, but they also see opportunities for growth. They now expect Topix to reach 3,050 by the end of 2025, up from an earlier estimate of 2,850. The Nikkei is forecasted to rise to 43,000, an increase from the previous prediction of 40,000. Right now, Topix is about 2,917, while the Nikkei is valued at 40,680.

Strategy Overview

With the new year-end targets of 43,000 for the Nikkei and 3,050 for the Topix, we see a clear, modest upside ahead. From the current Nikkei level of about 40,680, this suggests steady growth as we approach the end of 2025. Traders should interpret this as a sign to take bullish positions in the upcoming months. To make the most of this positive outlook, one effective strategy is to buy call options on Nikkei 225 futures. We think that contracts expiring in December 2025 with strike prices near 41,500 provide a great risk-reward balance. This way, traders can join in on the expected rise while keeping potential losses limited. This optimistic outlook is backed by real economic factors, including the finalized U.S.-Japan trade deal in early 2025. We also anticipate a new fiscal stimulus package from the Japanese government to be announced in September. These elements foster a supportive environment for stocks until the year’s end. Recent data supports this view, as the Japanese yen remains weak against the dollar, staying around the 158 level through July. This weakness benefits Japan’s large exporters, increasing their overseas profits when converted back to yen. Additionally, June 2025’s core inflation was reported at a manageable 2.2%, indicating that the Bank of Japan likely won’t need to tighten policy aggressively.

Trading Strategies

Given that some cyclical stocks may encounter difficulties, a more targeted approach might be wise. Traders could focus on export-oriented sectors like automotive and technology, rather than domestic-focused industries. This could mean buying calls on individual strong stocks instead of the entire index. As the outlook suggests steady growth instead of sharp spikes, implied volatility may decrease. Consequently, selling out-of-the-money put spreads could be a good way to generate income. For instance, selling a 39,000 / 38,500 put spread for October would allow traders to benefit from both the upward trend and time decay. We experienced a similar market situation in late 2023 when a weak yen and expectations for supportive policies led to a strong rally at year-end. Now, in mid-2025, we observe conditions that closely mirror that period. This historical context gives us added confidence that the market can achieve these new higher year-end targets. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now