January 6, 2014 7:00 pm JST

Experts see Nikkei average rising to 18,000-18,500 in 2014

TOKYO -- In the last year, the yen's depreciation in line with the U.S. Federal Reserve's move to scale back its quantitative easing pushed Tokyo stocks higher, with the Nikkei Stock Average rising above the 16,000 line for the first time in about six years in December and far outpacing the world's other major stock indexes worldwide. Market experts expect Japanese stocks to remain the top performers compared to other countries' stocks in 2014, and expect the Nikkei index to rise to an average of 18,464, according to a Nikkei Veritas survey of 69 experts. The prevailing view is that the Nikkei average will keep its momentum until the end of the year, with some correction phases included.

     The largest group of the respondents said the Nikkei average would rise to 18,000-18,500. The number of experts who predict the index to rise above 20,000 for the first time since 2000 accounted for slightly less than 20% of the total. The expected year's bottom of the Nikkei average varied depending on the respondent. But still, slightly more than 60% of experts predict that the bottom will be 14,000-15,500, or an average of 14,212. In 2013, the Nikkei average stood at its year high of 16,291 on Dec. 30 and its year low of 10,486 on Jan. 23.

     The largest group, or slightly more than 60%, of those surveyed said that the Nikkei average will reach its year high in December. This is based on an assumption that Japanese stocks will enter a correction phase as Japan's consumption tax rate will rise from 5% to 8% starting in April, but they will regain momentum because the yen is expected to continue to fall throughout the year, and which will boost expectations toward the end of the year that exporters' earnings for the year ending March 2015 will increase.

     Some experts said that expectations for an increase in capital spending and the end of deflation will grow. There was also the view that the NISA (Nippon Individual Savings Account) program, the Japanese version of Britain's individual savings account (ISA) system, which began this month, will prompt retail investors to invest in stocks on hopes for higher stock prices.

     On the other hand, the largest group of the respondents believes the Nikkei average will hit its year low in January. Many market experts are drawing up a scenario for Japanese stocks to regain their momentum in the second half of the year after running through a correction phase.

     Many experts also said that the Nikkei average may hit its year low sometime during the March-May period, because the consumption tax hike in April will likely increase concerns about the slower-than-expected Japanese economy during the period around April. Norihiro Fujito, head of investment information at Mitsubishi UFJ Morgan Stanley Securities, said that worsened consumer sentiment will send Japanese stocks lower, but at the same time hedge funds will be about to announce their midterm earnings, possibly providing volatility on the stock market.

     Market players are gradually increasing expectations for additional monetary easing by the Bank of Japan as early as the beginning of this year to prevent the domestic economy from losing strength due to the consumption tax hike. Considering the current stock prices and the yen's downtrend, however, many market players also predict that the BOJ may put off a move to introduce additional easing. Takahiko Yamaguchi, executive director at Sumitomo Mitsui Asset Management, said that investors could sell off stocks temporarily on disappointment. Such concerns are lingering on the market.

     It has been a year since Prime Minister Shinzo Abe took office, but his growth strategy has been lacking in excitement for market players. The largest group of the respondents said that easing of bedrock-like regulations, including reforms in employment, healthcare and agriculture, is the strongest candidate that can help stock prices rise. These reforms are seen to be difficult in Japan. The second strongest candidate is revitalization of the economy by enhancing the alliance between the government and the BOJ or by taking advantage of national strategic special zones. Many experts said they hope for further corporate tax cuts. If the government's discussion of corporate tax cuts shows progress, overseas investors will have a new look at Japanese stocks, said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.

     According to the survey, the Dow Jones industrial average is expected to be an average of 17,699 at its year high and 14,748 at its year low. The Shanghai Composite Index is expected to rise to an average of 2,467 during the year, up about 20% from the current point, on hopes for economic recovery in China. Many experts said that both of the two overseas stock indexes will gain momentum toward the end of the year, as will their Japanese counterpart.

     According to the previous survey conducted at the end of 2012, the Nikkei average was expected to rise to an average of 11,475. Overall the prediction was right, but the BOJ's new round of monetary easing, significant declines in the yen, and a 400% rise in purchases of Japanese stocks by overseas investors were not expected by market experts.