Investing.com– Japanese stocks are trading mostly rangebound so far in 2024 after logging strong gains last year, with BofA analysts noting that a number of negative factors for local markets may already be priced.

The index has traded flat so far in 2025 after increasing nearly 20% last year, with BofA analysts noting that the index reacted positively to the inauguration of US President Donald Trump, especially given that he did not impose trade tariffs as feared.

“We believe this represents a first step towards the market pricing in the end of bad news after the negative impact on financial conditions from the jump in long-term US yields since late December 2024, ” said BofA analysts in a note.

However, markets remain uncertain about the near-term outlook for tariffs, as Trump has threatened 10% tariffs against China and 25% tariffs on Canada and Mexico. But BofA expects clarity on tariffs to spur many bets that the bad news is over.

The BOJ’s rate hike is already priced in, says BofA

BofA noted that a stronger yen and fears of an interest rate hike by the Bank of Japan in January likely curbed gains in Japanese markets.

But BofA believes that a rate hike – that is – has been priced in by the markets, with futures signaling a more than 90% chance of an increase.

BofA noted that if the BOJ were to raise rates now, the market would likely adopt the view that further increases are unlikely until at least after the Upper House elections later this year.

“The market may conclude after the BoJ’s January meeting that the negative catalysts are now gone,” BofA analysts said.

The investment bank reiterated its focus on exposed Japanese stocks and niche exporters based on an uncertain economic outlook.

But BofA noted that a “growing sense that bad news is priced in” could also make quality cyclical stocks appear more attractive, with such a trend likely to be reinforced by to recover foreign investors flowing into Japan.