Japan shares to recoup recent losses on monetary easing, U.S. recovery: Reuters poll

TOKYO Thu Mar 20, 2014 4:29am EDT

TOKYO (Reuters) - Japan's Nikkei stock average will recoup its recent losses and end 2014 at a level not seen since before the financial crisis, as more monetary easing offsets weaker demand after the sales tax rises next month, a Reuters poll found.

The Nikkei .N225 soared 57 percent last year, propelled by the Japanese government's massive fiscal and monetary stimulus to revive the economy, but has shed more than 11 percent this year as risk appetite has soured.

Still, according to the median forecast of 18 analysts polled by Reuters in the past week, the Nikkei will gain 21 percent on Wednesday's close of 14,462 to end the year at 17,500. A December poll predicted it would reach 18,000.

That would be a 7.4 percent gain in 2014 after the Nikkei fell more than 6 percent last week, the biggest weekly drop since June.

Markets have wobbled over the past few weeks as concerns over Ukraine and slowing growth in China rattled investors, underpinning the safe-haven yen and hurting overall sentiment. Analysts said investors' risk-off stance should be short-lived if tension over Ukraine eases and investors turn their attention back to domestic demand and the U.S. economy.

Before the Japanese market rises, however, market participants fear domestic demand could weaken after the government raises the sales tax to 8 percent from 5 percent in April.

"The Japanese market may correct in May, when the negative impact from the tax hike starts hitting demand," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. He predicted that the Nikkei will likely trade at 15,500 in June and 18,000 at the end of the year.

For the second half of the year, helped by likely calls for more monetary stimulus by the Bank of Japan, the Nikkei will start rising again, he said.

The BOJ is expected to ease policy again by July as prospects for higher inflation remain remote and the outlook for the economy weakens, a separate Reuters poll found, and by mid-2014 the Nikkei is expected to reach 15,750. <ECILT/JP>

PENSION LIFT

Helping sentiment is the likelihood that Japan's $1.26 trillion public pension fund, the Government Pension Investment Fund, will shift more money into stocks and other risky assets from the safety and paltry yields of government bonds, market participants said.

"We remain bullish on Japan stocks," said Ryota Sakagami, chief equity strategist at SMBC Nikko Securities, who predicted that the Nikkei will trade at 18,000 in June, the highest estimate of all respondents.

He said there are three potentially positive catalysts in the foreseeable future - the reduction of corporate taxes, the BOJ's easing and the GPIF's allocation shift to Japanese stocks.

"Any one of these hopes will drive the Nikkei higher if it becomes official," Sakagami said.

Last month, Chief Cabinet Secretary Yoshihide Suga said Prime Minister Shinzo Abe is determined to cut Japan's corporate tax rate.

Other market participants remained wary about risks including a failure for Abe to flesh out the "third arrow" in his "Abenomics" policy, which also includes hyper-easy monetary policy and fiscal spending.

Investors have mostly applauded the first two "arrows" of Abe's economic prescription, but have been disappointed by the growth strategy, including a perceived lack of progress in key areas such as labor market reform, which became part of the reasons for the market's correction last June.

"Long-only foreign investors are on the sidelines now. They are waiting for the government to flesh out details for the third arrow, and if it disappointed them again, they will probably never enter Japan," said Kenichi Hirano, a strategist at Tachibana Securities. "Other foreign investors will likely sell."

Reflecting such uncertainties, forecasts for the Nikkei ranged from 9,000 to 18,000 at the end of next year.

(For other stories from the poll see [ID:nL6N0MF21A])

(Editing by Chris Gallagher)

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