Core Viewpoint - The Japanese stock market is showing strong momentum towards a long-term bull market, driven by a robust global market and optimistic expectations regarding new government economic policies. Citi predicts that the Nikkei 225 index could reach 50,000 points as just a "checkpoint" on its way to 55,000 points by the end of 2026 [1][6]. Group 1: Government Policies - The establishment of the new government under Prime Minister Sanae Takaichi is seen as a core logic supporting the long-term bullish trend of the Japanese stock market. The government is expected to implement supportive economic policies, including tax cuts, to assist households facing declining real incomes [3][4]. - The new government's policy framework aims to create a virtuous cycle of wages and prices by encouraging investment in growth sectors and improving productivity [3][4]. Group 2: Corporate Earnings - Japanese companies are demonstrating strong profitability even in a persistent inflationary environment, with over 50% of companies exceeding quarterly earnings expectations since 2023. This trend is particularly evident in the non-manufacturing sector, driven by domestic demand [4][5]. - The report indicates that rising prices are helping companies improve their profit margins, and if the new government's measures succeed in boosting real incomes, it will further solidify inflation expectations and ensure sustained strong earnings for domestic-focused companies [4]. Group 3: Valuation and Foreign Investment - Despite short-term signs of overheating in the valuation of Japanese stocks relative to global markets, there remains significant potential for long-term valuation recovery. The average return on equity (RoE) for Japanese companies is increasing, supported by improved profit margins and stock buybacks driven by corporate governance reforms [5][6]. - There is still ample room for foreign capital inflow into the Japanese stock market, with net purchases by foreign investors reaching 5 trillion yen since 2025. This suggests that despite previous net selling trends, there is a substantial amount of overseas capital waiting to enter the market [5][6].