High Expectations for Japan Stocks

Japanese stocks seem to be on an irresistible rally, hitting fresh fifteen-year highs for seven straight days, and cheap valuations are expected to propel them to greater heights, analysts say.

“We are bullish on Tokyo stocks – we don’t see a major correction before the next consumption tax hike in April 2017,” BofA-Merrill Lynch’s equity strategist Kenji Abe told CNBC by phone. BofA-Merrill Lynch has a 22,700 Nikkei target for the end of March 2016.

For decades, global investors have steered clear of Japan. Not only was the country plagued by decades of deflation but its companies were notorious for hoarding cash. But a sharply weaker yen since Prime Minister Shinzo Abe’s return to power at the end of 2012 has not only bumped up corporate profits but is also making their stock valuations look cheap in U.S. dollar terms.