Goldman Sachs Group Inc. lifted its targets for Japanese stocks after the market soared this year amid expectations for corporate reforms and solid fundamentals relative to overseas markets.

The Topix may reach 2,500 in 12 months, analysts including Kazunori Tatebe wrote in a June 21 report, raising their forecast from 2,200. That implies an 8.9% upside from Wednesday’s close.

“We expect Japanese equities to resume their move higher in autumn” after moderating in the summer, the report said. “The market should welcome the likely positive outcome at first-half earnings season, including upward revisions to guidance, favorable earnings momentum, further announcements of measures to improve profitability, and buybacks.”

In the near term, the market’s momentum is likely to slow on signs of overheating and a lack of catalysts, according to the note.

Japan’s stock market has risen to its highest in more than three decades, making it home to the world’s best performing major index this year. Foreign funds are flowing in on corporate efforts to boost shareholder returns, the nation’s economic reopening and the central bank’s easy monetary policy.

While the gains have pushed valuations above their historical average, structural changes and reform developments should justify a premium in price-to-earnings ratio, the report said.

Goldman also raised its six-month target for the Topix to 2,400 from 2,050 and its three-month estimate to 2,200 from 2,000. It recommends overweighting high-quality sectors such as electrical machinery and IT services, as well as value sectors including banks and automobiles. Investors should underweight sectors including food, energy, construction and pharmaceuticals.

--With assistance from Kurt Schussler.