Despite Japan's brighter economic outlook and an improvement in corporate profits, the country's stocks are at the center of a global equity selloff, down 14 percent year to date.
Even with the index's sharp 2014 losses, market watchers aren't ruling out further downside of up to 15 percent over the coming weeks, as heightened risk aversion continues to feed into yen strength, while doubts over further Bank of Japan stimulus measures linger.
"From my perspective, the Japan trade has been largely a correlated belief in yen weakness. Clearly that has reversed over the past few weeks... another 10-15 percent [downside] would not surprise me at all," Nicholas Ferres, investment director, Global Asset Allocation, Eastspring Investments told CNBC.
The yen, which is viewed as a safe haven and holds an inverse correlation with the Nikkei and Topix, has strengthened almost 4 percent against the U.S. dollar so far this year amid worries over emerging market troubles and U.S. economic growth.