Outlook for the Japanese Stock Market: Latest Analysis and Recommended Stocks for October 2025

Current State of the Japanese Stock Market and Future Outlook

The Japanese stock market in 2025 rebounded strongly towards summer after a sharp drop in April. As of October 4, the Nikkei 225 index stands at 45,770 points. It is robust. The background for the rise in stock prices includes “re-evaluation of Japanese corporate value” and “structural advantages.”

In April, the Nikkei average PER dropped to 12 times. With the recovery of investor sentiment, it has returned to the 13 times range. Due to a shift of funds from US stocks, the Japanese market is being chosen for its sense of undervaluation.

The corporate governance reforms at the Tokyo Stock Exchange are starting to take effect. More companies are becoming proactive about increasing dividends and buying back their own shares. The fundamentals also seem to be improving. The recovery of the semiconductor supply chain is also providing a tailwind.

Mr. Buffett started investing in Japan's five major trading companies in 2019. By June 2025, he had increased his holdings further. He said that he plans to “not sell these stocks for 50 years.” That's incredible confidence.

Recommended Japanese Stock 1: [Keyence 6861.JP]

Keyence is the “hidden champion” of industrial automation. Founded in Osaka in 1974 by Mr. Takizaki. They create high-value-added sensors and measuring instruments with a “design-oriented” philosophy. Interestingly, they do not manufacture in-house. They have a direct sales network in 46 countries worldwide.

The main products are sensors for industrial automation, precision measuring instruments, and laser processing equipment. They are widely adopted by semiconductor, automotive, and pharmaceutical manufacturers.

The performance for the fiscal year 2024 is stable, with a revenue of 1.059 trillion yen and an operating profit of 549.78 billion yen. Those are quite impressive figures.

The average target stock price set by analysts is 74,282 yen. It seems that there is a possibility of it rising about 30% from the current 56,800 yen. It might be attractive.

Recommended Japanese Stock 2: [Tokyo Electron 8035.JP]

Tokyo Electron is a semiconductor equipment giant with a market capitalization of 12.6 trillion yen. It provides wafer cleaning systems and other solutions to companies like Samsung, TSMC, and Intel.

In the fiscal year 2024, sales are expected to increase by 32.8% compared to the previous year, reaching 2.43 trillion yen. Overseas sales account for 92.2%. Domestic sales have only increased by 2.7%.

The profit aspect is also strong, with a gross profit margin of 47.1% and an operating profit margin of 28.7%. The net profit after tax reached 544.13 billion yen, an increase of 49.5%. The earnings per share also significantly increased to 1,182 yen.

Jeffries analysts have a “buy” rating with a target stock price of 32,000 yen. They are likely to benefit from the recovery in semiconductor demand.

Recommended Japanese Stock 3: [Mitsubishi Heavy Industries 7011.JP]

Mitsubishi Heavy Industries is like a living fossil of the Japanese industrial sector. Founded in 1884, it has supported Japan's industrialization since the Meiji era.

Starting with shipbuilding, now involved in aerospace and energy equipment as well. As a core company of the Mitsubishi Group, it embodies the pinnacle of Japanese manufacturing.

For the fiscal year 2025-26, operating profit is expected to increase by 9.6% to 420 billion yen. The impact of U.S. tariffs is not included. There is strong demand from national defense, and it is anticipated to grow further from 383.2 billion yen from the previous year.

The aerospace and defense sector is expected to see a profit increase of 40%. The energy systems business is also expected to grow by 17%. It's performing well.

The average target stock price set by analysts is 3,743 yen. There is a potential increase of 17.5% from the current price of 3,185 yen. It's an old company, but it seems to have growth potential.

Recommended Japanese Stock 4: [Nintendo 7974.JP]

Nintendo is a gaming giant that colored childhoods. However, its performance for the fiscal year 2024 was lackluster. Revenue decreased by 30.3% to 1.16 trillion yen, and profits nearly halved.

There are two reasons. One is that the Switch console is approaching the end of its lifespan, and the other is that there is a reluctance to buy due to expectations for the next-generation console “Switch 2”. By region, the Americas account for 44% as the largest market, while Europe and Japan account for about 25% and 24%, respectively.

Why recommend it when the performance is poor? That's because market analysts believe that the investment value of gaming stocks will revive. According to Doug Creutz of TD Cowen, the growth rate of the gaming industry continues to outpace global GDP. The increase in players and the diversification of revenue models are key. Revenue per user is also rising through subscriptions and virtual item sales.

The average analyst target stock price is 14,035 yen. The highest is up to 20,780 yen, and it seems likely to fluctuate significantly depending on the announcement of the new hardware.

Recommended Japanese Stocks 5: [Sony Group 6758.JP]

Sony's latest quarterly earnings showed a 4.6% increase in net profit to 197.7 billion yen, thanks to its music and film businesses. However, the forecast for the new fiscal year predicts a 13% decrease in profit due to the impact of U.S. tariffs. It's a bit tough.

Upon closer inspection, music and film content are performing well. The results of investments such as the acquisitions of Bungie and Crunchyroll, as well as IP development with Kadokawa, are beginning to surface.

On the other hand, hardware is struggling. The sales forecast for the PS5 has been revised downward from 18.5 million units to 15 million units. Furthermore, U.S. tariffs could wipe out profits of 100 billion yen. It's tough.

Sony executives have begun to respond by diversifying production bases and adjusting prices. There is an impression of change with a unique Japanese corporate style of “flexible management,” balancing hardware and software.

The analyst's target stock price is an average of 4,389 yen. It seems there is a 22% upside potential from the current 3,607 yen. It may be tough in the short term, but it could be attractive from a long-term perspective.

Recommended Japanese Stock 6: [Mitsubishi Corporation 8058.JP]

Finally, it's Mitsubishi Corporation. One of the five major trading companies, and a company that Mr. Buffett quite likes.

At the end of June 2025, Berkshire Hathaway's National Indemnity Company increased its shareholding in the five major trading companies from 1.0% to 1.7%. The shareholding ratio rose from 8.5% to 9.8%. It is quite a significant shareholder.

Mr. Buffett started investing in Japan in July 2019. His long-term perspective shows trust in Japanese companies. I wonder if he sees something.