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Analysis: Japan’s Nikkei Seen Rallying Beyond 30,000, With or Without BOJ

Published by linker 5

Posted on February 10, 2021

4 min read

Last updated: January 21, 2026

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FILE PHOTO: First trading day of stock market in Tokyo

By Kevin Buckland and Hideyuki Sano

TOKYO (Reuters) – Japan’s Nikkei stock average looks set to extend its rally beyond the psychological barrier of 30,000 for the first time in three decades, analysts say, even without the help of the central bank’s massive fund-buying programme.

The benchmark index has soared almost 30% since November, outperforming peers in North America and Europe, as foreign investors ride on a wave of central bank cash, hoping to capitalise on an anticipated global rebound from the COVID-19 pandemic this year.

Japan’s long-neglected stock market has suddenly found itself the darling of what’s come to be known as the reflation trade, with its abundance of cyclical shares, such as electronic parts makers, that tend to do well in the early stages of a recovery in global trade.

As long as the recovery plays out according to script, the Nikkei is poised to test 31,800 this year, says John Vail, chief global strategist at Nikko Asset Management in Tokyo. That target would mean gains of around 8% from current levels.

“Japan is in a sweet spot,” he said.

Even the huge cash piles that Japan Inc. has been roundly criticised for have come to be viewed as a virtue since the pandemic, because strong balance sheets mean steadier dividends.

The mood is getting so bullish that few analysts now worry that a scaling back of central bank support will derail the rally — as long as it’s communicated carefully enough to avoid a “taper tantrum”-style panic.

The Bank of Japan’s programme to buy up to 12 trillion yen ($114.8 billion) annually of exchange-traded funds (ETFs) mainly helped fill the vacuum left by an exodus of foreign money at the start of last year. Analysts say that with the central bank already holding about 10% of the market, there is little justification now for such a heavy-handed approach.

“The market is trading at high multiples and the need for the BOJ to enter the market is significantly low,” said Shrikant Kale, a Hong Kong-based research analyst at Jefferies.

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At a policy review next month, BOJ officials will discuss ways of scaling back ETF purchases, sources have told Reuters.

The BOJ declined to comment for this article.

The Nikkei’s 28% surge since the start of November — when Joe Biden’s election triggered a wave of optimism for massive pandemic-relief spending — has upstaged rallies of around 20% for both the S&P 500 and pan-European STOXX 600.

“It’s a compositional thing when it comes to the Nikkei and how heavily the index is weighted to the reflation trade,” said Kyle Rodda, a market analyst at IG Australia, who sees the potential for a rally to 33,000 this year.

“The Nikkei is one of the stronger investment cases at the moment in the Asian region.”Analysts expect profits to rise 40-50% this year and another 10% or more the following year.

(GRAPHIC: Japan corporate earnings – https://fingfx.thomsonreuters.com/gfx/mkt/yzdvxwomypx/210210A.png)

A break above 30,000, though, is sure to stir painful memories of its last big run, when it soared to its all-time peak of 38,957 on the final trading day of 1989, only to lose half its value over the following nine months.

The scars of that are still etched deeply into Japan’s economy and collective psychology some three decades since asset prices collapsed in the early 1990s.

But even as Japanese shares have rallied, pushing price-to-earnings ratios to a decade-high of around 17 times, that pales in comparison to their bloated multiples of up to 70 at the height of what is now known as the bubble.

Scott Gilchrist, who manages an A$750 million ($580 million) portfolio of Japanese and South Korean stocks at Australia’s Platinum Asset Management, remains sanguine.

“When I look at a 50-year chart, it does look a lot like the 1980s, but it’s very much the early 1980s rather than those latter periods,” he said. “The market has risen quite a bit, but I still think stocks are cheap in Japan.”

(Additional reporting by Stanley White in Tokyo and Tom Westbrook in Singapore; Editing by Vidya Ranganathan and Jacqueline Wong)