Investing.com-- Japan’s stock market is nearing its bottom and poised for a gradual recovery by the end of 2025, despite near-term volatility driven by U.S. tariff negotiations and earnings revisions, Bank of America (BofA) analysts said in a note.

BofA analysts said that the TOPIX index’s price-to-earnings (P/E) ratio fell to 11.2x in early April, below its typical range of 12-16x, suggesting the market has "priced in future earnings deterioration all at once."

BofA projects a range-bound market through June, followed by a gradual recovery starting in July and a stronger upturn in the fourth quarter.

Key catalysts include progress in U.S.-Japan tariff talks, potential U.S. tax cuts, and clearer corporate guidance on tariff impacts from first-quarter earnings, BofA analysts said.

However, they cautioned that sustained U.S. dollar weakness or financial system instability could delay the rebound.

BofA recommended focusing on low-beta domestic demand sectors with stable earnings, such as pharmaceuticals and utilities, while selectively adding quality cyclical stocks during dips.

They highlighted Chugai Pharmaceutical (TYO: 4519 ) and KDDI Corp. (TYO: 9433 ) as examples of resilient picks.

Corporate reforms and share buybacks are likely to support prices, even if earnings weaken temporarily, analysts said, citing Japan’s accumulated cash reserves and shareholder-friendly policies.

BofA maintained a "cautiously bullish" stance but warned that risks remain, particularly if U.S. recession fears escalate.