After rising 16% in April, Japan’s Nikkei 225 NI225 increased 12% last month. However, according to Citi, Japanese stocks may be nearing their top before continuing to advance until the end of the year. Supporting factors have included hopes for a U.S.-Iranian peace agreement, a peak in crude oil prices, a boom in AI and semiconductors, and earnings guidance remaining at normal levels of conservatism, according to Citi.

“Given that not only the Nikkei 225, driven by the tech boom, but also TOPIX recently hit YTD highs, and that earnings revision deterioration is expected in the immediate future, Japanese equities may peak for a while in the short term,” strategist Ryota Sakagami says. However, this does not alter their overarching optimistic long-term perspective on Japanese equities. “We think the overall potential for growth toward the end of the year remains strong,” Sakagami says, adding that valuations still have room to rise due to improving margins in the current inflationary environment.

Citi has established a TOPIX target of 4,500 and anticipates that the Nikkei 225 will surpass 70,000 by the end of the year, suggesting an approximate 5% increase from current levels.