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Investment firm Goldman Sachs Group Inc. trimmed down its forecasts for the TOPIX on Monday, as foreign investors retreated from political issues and a growing yen.

The bank reduced its three-month target for the index by 5.6 percent to 1,700, indicating a slight reduction from its current level. Its six-month target was lowered by 2.7 percent to 1,800, while its 12-month target lessened by 2.5 percent to 1,950. TOPIX closed at 1,817.56 in 2017.

The TOPIX index slipped 0.4 percent to ¥1,708.78 on Monday, while the Nikkei 225 dropped 0.3 percent to ¥21,388.58.

Chief strategist Kathy Matsui said headwinds, including domestic political uncertainty, the impact of a stronger yen, global trade fears, and diverse macroeconomic data will restrain the upside for Japanese stocks.

Nevertheless, Matsui still expects a rebound from the TOPIX in the medium term. The index has declined more than 5 percent this year. She added that since none of the headwinds are likely to subside right away, it may take some time before foreign buying starts again.

Japan’s Foreign Selling

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During the first three months of 2018, foreign investors pulled out a combined ¥8.2 trillion ($77 billion) worth of Japanese equities, largely from futures, as problems in Japan continue to increase.

Indexes in Japan at that time tumbled to their lowest level since February, losing more than 8 percent for the year, with the TOPIX opening 0.8 percent lower on March 26. The situation was worse, when the Nikkei 225 hit its lowest of 4.5 percent on March 20.

The huge equity sales by non-Japanese investors, which now add up to a ¥3.9 trillion ($37 billion) since the start of the year, have been slightly offset by Japanese retail investors, a group that has traditionally acted as the contrarian.

Still, most of the heaviest lifting has been from the Bank of Japan (BOJ). The bank had purchased ¥1.9 trillion of Japanese shares as of March 23.    

Foreigners have also become extreme sellers of Japanese cash equities, partly due to large redemptions from exchange-traded funds (ETFs) and other passive funds.    

In the week ended March 23, foreigners were sellers of ¥2.2 trillion of cash equities ($21 billion), the heaviest outflow, since the ministry started gathering comparable weekly figures in April 2001, according to data by Japan’s ministry of finance.

Goldman Sachs see a small risk, following market’s pricing in the chance of a 10 percent lost in earnings per share in fiscal 2018, while the New York-based brokerage estimated a growth of 2.5 percent. The condition though, is that the exchange rate needs to keep its footing around the ¥105 per dollar mark.

The yen rose to a 16-month high against the greenback in March, as tensions between the US and China grew further, with the two countries hitting each other with new tariffs. Aside from acting as a gauge of risk, a strong yen weakens corporate earnings at export-driven Japan.

The safe-haven currency also found support in the prior month on Japanese Prime Minister Shinzo Abe’s cronyism scandal. The premier’s support rating fell amid the issue, which involved the sale of a government land to a school that is believed to have connections with Abe.

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