Tokyo's Topix index will rise to 1,200 in the year ending in March 2012, said UBS AG in a report dated Feb. 18.
UBS, Switzerland's biggest lender, lifted its estimate for the index from 1,100 on higher profit, analysts led by Shoji Hirakawa said. Net profit for companies in the index may grow 13 percent year-on-year in fiscal 2011, and increase 42 percent the following year should the nation's corporate tax be decreased, the analysts wrote. Lower fixed costs and shrinking inventories will help to boost margins, the strategists said.
"We expect share prices to factor in further upwards revisions to company projections ahead of full-term results announcements in May," Hirakawa wrote. "In view of declining cost ratios and lower year-on-year inventories, we forecast that margins will improve going forward and that guidance will be revised up to call for profit growth."
Prime Minister Naoto Kan proposed last year to lower the effective corporate tax rate by 5 percentage points in 2011. Japan's corporate tax is one of the highest among Organization for Economic Cooperation and Development nations.
The corporate tax rate in Tokyo is 40.69 percent, compared with 28 percent in the U.K. and 25 percent in China.