According to strategists, the Nikkei 225 share index of TOKYO Japan will hit the psychological 30,000 level by the end of 2023 on a better domestic corporate and global outlook in the latter part of the year.
After ending its zero-COVID policy, many Japanese companies that rely on exports are expected to benefit from an improvement in China, according to Strategists.
The Japanese companies will issue their outlook for 2023 by May, based on the current macro environment. The forecast will be conservative, said Hikaru Yasuda, chief equity strategist at SMBC Nikko Securities.
The environment is not as bad as companies expect, and they will slowly raise their forecast towards the end of the year. The median estimate of 15 analysts was for the Nikkei to be at 30,000 at the end of the year, after rising to 28,000 by the end of June. The end-year forecast is the same as the median from a poll taken three months ago, but the mid-year view is 2,000 points lower.
The International Monetary Fund raised its global growth outlook slightly in 2023 due to the surprisingly resilient demand in the United States and Europe, easing energy costs and the reopening of China's economy.
Hiroshi Namioka, chief strategist and fund manager, T&D Asset Management, said companies whose businesses are linked to China are expected to perform well.
The 30,000 mark would be a 9 per cent gain from Tuesday's close of 27,473. The Nikkei, which fell as low as 25,661, fell as low as 25,661. On January 4, the first day of trading this year, 89 has been below 28,000 amid uncertainties about the pace of the U.S. Federal Reserve's interest rate hikes.
After Kazuo Ueda takes over as governor in April, investors will be waiting for details of the Bank of Japan's monetary policy, which has been defended by Haruhiko Kuroda, who has been defending the central bank's ultra-low rate policy for the past ten years.
Bond strategists expect Ueda to change or abandon the current yield control framework, which would push up the benchmark 10 year government yield.
The yen was strengthened against the dollar after the BOJ widened the trading band of the 10 year government bond yield at its December policy meeting.
The yen has fallen by 5 per cent from its mid-January high against a rising dollar, which has rallied in recent weeks because of expectations that the Fed will go further in raising rates.
Hirokazu Kabeya, chief global strategist at Daiwa Securities said Japanese equities are undervalued due to caution for the currency movement.
They could be lifted when concerns about the yen's extreme gain against the dollar are removed.