Buy the dip in Nikkei as valuations look attractive after recent pullback: UBS

UBS reiterated an “Attractive” view on Japanese equities after the Nikkei 225’s sharp 5.8% decline and the TOPIX’s 3.9% drop. The bank argues the pullback has improved valuations and does not signal a broad risk-off regime. UBS highlighted that the Nikkei Volatility Index rose to 40, a level exceeded only 4% of the time since 2001, but historical patterns suggest the following six months have often delivered strong gains. The note pointed to sector-driven weakness, especially in information technology, while defensive areas such as health care and consumer staples held up better. UBS also sees Japan’s earnings cycle still in expansion, supported by margin improvement, pricing power, and exposure to the global AI supply chain, and forecasts 10% fiscal 2026 earnings growth. Overall, the article is bullish on Japanese stocks despite near-term volatility.