Japanese stocks are expected to finish the year on a strong footing, rallying over the next three months on expectations the government and the Bank of Japan will offer fresh stimulus to stoke a shaky economy, a Reuters poll found. The Nikkei share average is seen rising to 20,000 by the end of December, according to the median forecast of 19 analysts and market strategists polled by Reuters in the past week, up 18 percent from Tuesday's close of 16,930.84 and 15 percent higher for the whole year.
Forecasts for the year-end ranged from 13,000 to 21,500. By mid-2016, the Nikkei is expected to reach 21,000, according to the consensus, although the range was again wide between 9,000 and 25,000. Japan, along with other global markets, was roiled after China unexpectedly devalued the yuan on August 11, and fears of a China-led global slowdown have grown following a series of grim factory activity surveys and generally soft economic indicators.
Beijing has since intervened to support the yuan and has taken several measures to curb capital outflows on top of a flurry of stimulus steps over the past year, but underlying concerns of China's fragile economy persist, traders said. On Tuesday, the Nikkei wiped out its year-to-date gains and is down around 19 percent from its 18-1/2-year high of 20,952.71 hit in late June. "What became clear during the turmoil was that even with Beijing's various measures, there was a limit to what a government can do to stabilize the economy and halt a stock market rout," said Akio Yoshino, chief economist at Amundi Japan.
"There is a risk of China slipping into deflation, and people will likely shift to fixed-income products from risky assets." Still, Yoshino expects the Nikkei to rise in the coming months, but the pace of gains will likely be slower than he had initially expected. He forecasts the Nikkei at 20,300 at the end of December and 21,600 in mid-2016. Looking ahead, analysts say a rate hike by the US Federal Reserve before year-end will bolster the Nikkei as it would clear uncertainty on US monetary policy and help boost the dollar-yen rates to the benefit of Japanese exporters.
"Such stocks as autos and tech firms, whose share prices corrected despite their strong earnings forecasts, will be revisited then," said Takuya Takahashi, a strategist at Daiwa Securities, who is predicting a Fed rate hike in December. While weak consumption and low capital spending due to falling China demand could be a risk, expectations of further BOJ monetary easing may support stocks. The government may also offer some stimulus measures before it prepares a second sales tax hike in 2017, analysts said. At end-2016, analysts forecast the Nikkei to trade at 22,000. Hiroyuki Fukunaga, chief executive of Investrust, said the risks include a possibility the Fed's rate hike gets delayed or the BOJ does not ease policy by the end of 2016.
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