"Japanese shares tend to be closely correlated with the medium-term and long-term business cycles," he said. "In periods when private-sector investment, particularly capital expenditures, accelerates, the Tokyo stock market typically stages a long-term bull run," he said. If capex and construction investment expand through the early 2020s, shares could have a long-term "revitalization" rally through 2020, he said.
(Read more: Why Japan stocks may storm higher even if the yen firms)
Tokyo was chosen to host the Olympic Games in 2020, spurring expectations of increased infrastructure investment.
Miyake expects the Nikkei 225 index to reach 16,400 by the end of March and 18,000 by the end of December, while the Topix index may target 1360 by end-March and 1380 by end-June and 1490 by end-December. The index targets through June are based on a price-to-earnings ratio of around 14 times 12-month forward earnings, around the current level. The Nikkei is currently trading around 15,100, while the Topix is around 1234.
He expects corporate earnings forecasts could be raised as Japanese firms beat forecasts by a wide margin in the July-September quarter, but analysts mostly have not adjusted their estimates.
Nomura also expects a 2014 rally in Japan's stocks. It expects the Nikkei to hit 16,000 by the end of March, slip to 15,000 by the end of June and then climb to 18,000 by the end of December. It expects the Topix index at 1500 by the end of 2014.
(Read more: Japan's economic growth slows in Q3)
"In the first half of the year, we expect stocks to rally as improvement in supply and demand conditions are joined by expectations for monetary easing," the bank said in a note.
"As the middle of the year approaches, we think stocks will tend to correct as concerns over the adverse effect on corporate earnings of the consumption tax increase (set for April) are priced in," Nomura said in a note. But in the second half, it projects stock valuations will head for 15 times estimated forward earnings, with Nomura expecting the introduction of additional monetary easing around that time.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1