Strong fundamentals pushed the Nikkei to fresh 15-year highs in recent sessions, leading some analysts to raise their targets amid expectations that upside momentum will continue amid strong fund flows.
"Fundamentals and flow of funds point to further upside," said Goldman Sachs in a note published on Wednesday, raising its year-end target to 21,700 from 20,000.
"Japanese firms' earnings growth will outpace other regions globally," it said, noting it expects the Nikkei to rise amid "continued flows from corporates, public pension funds, the Bank of Japan, and possibly retail"
The Nikkei rose 1.1 percent to a fresh 15-year closing high of 18,785 on Thursday, extending a near one-week rally.
Daiwa is even more bullish. It expects the Nikkei to rise to 20,000 in April, 22,500 by September and 28,000 in the first half of 2016.
If history is anything to go by, further upside is likely: "Historically, Japanese stocks rise in March if they rose in January and February," according to a Daiwa technical analysis note published on Friday. The Nikkei gained 1.3 percent in January and is up 6.3 percent so far in February.
Domestic buying fuels rally
Domestic investors are driving the current rally, which is why it's likely to continue, analysts say.
In 2014, Japanese trust banks and corporates poured 3.79 trillion yen into Japanese stocks, while foreigners only bought 853 billion yen, according to Goldman. So far this year domestic spent 970 billion yen on the Japanese stock market, while foreigners have sold 1.1 trillion yen worth of shares.
Goldman expects the main buyers – the Bank of Japan (BOJ) and the Government Pension Investment Fund (GPIF) – to continue buying.