Citi sees little sign of overheating in Japan’s high-tech sector

Citi says Japan’s recent rally—led by AI and semiconductor-related names—has pushed the Nikkei above 60,000 and lifted the Nikkei/TOPIX ratio to an all-time high of 16.2, but the bank sees little sign of overheating. Citi points to rising global semiconductor sales, an MSCI Japan IT earnings-revision index outpacing the broader market, and a price-to-earnings-growth ratio for IT below TOPIX as evidence that valuations remain reasonable. Rather than a tech-led correction, Citi expects a gradual normalization as laggard, TOPIX-heavy sectors (construction, real estate, finance, defense, energy) catch up, especially if Middle East tensions ease—implying lower near-term downside risk for the market and potential broadening of the rally.