As Japanese investors look ahead at 2011 many are betting on a healthy market recovery, possibly above the level seen before the 2008 subprime mortgage crisis, analysts said Thursday.
Steady improvements in the US economy and abundant market liquidity, thanks to Japanese and US super easy monetary policies, have cheered investors, with Japanese stocks playing catch-up with other international markets.
Some players have concerns about the strong yen, which hurts Japanese exporters, and other economic risks - but broadly the outlook is upbeat for economic and market recovery from the 2008-09 global downturn.
Strong US Christmas sales, as well as an extension of tax cut programmes in the United States, should also boost Wall Street and, in the process, push Japanese shares along, analysts said.
The good news comes despite the fact that in 2010, the headline Nikkei index at the Tokyo Stock Exchange fell 3.01 percent to 10,228.92. The Topix index of all first section shares lost 0.97 percent to 898.80.
The Nikkei reached its annual peak of 11,339.30 on April 5 as players cheered bright corporate earnings, rebounding from the economic abyss seen in 2008.
But the index plunged to the year's low of 8,824.06 on August 31 as the yen surged, eventually to a 15-year high of 80.21 yen to the dollar in November, particularly depressing exporters.
A high yen makes Japanese products more expensive overseas and shrinks corporate foreign earnings when repatriated.
Tokyo's efforts to lower the yen, including market interventions, were overwhelmed by an aggressive race among major economies to cap or drive down their own currencies to expand their exports.
As the market woes continued, the Tokyo bourse also experienced thinning trading as international investors fled to emerging markets to seek bigger returns, the Nikkei business daily said.
But many observers see things picking up next year.
Daiwa Securities said it believed the Nikkei will shoot above 12,214, the closing price immediately before the 2008 collapse of US investment bank Lehman Brothers, which triggered the downfall of the global economy. "We believe the US markets will maintain the upward momentum on the back of economic recovery," Daiwa said, adding that the Nikkei index should rise toward 12,000-13,000.
Masatoshi Sato, senior strategist at Mizuho Investors Securities, said the risk posed by a high yen still remains for the January-March quarter. "But the market's consensus is that, toward the year-end, Japanese shares should generally advance," he said.
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