Optimism over Prime Minister Shinzo Abe's radical economic policies combined with a rapidly weakening yen pushed Japan's Nikkei 225 past the 12,000 mark for the first time in four-and-a-half years on Thursday. And experts say there is more upside to this rally which is being driven not just by "Abenomics" but improving economic fundamentals as well.
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"We are warning investors not to start getting giddy on the bottom rung of the ladder. The rally has barely started," said Japan strategist at CLSA Nicholas Smith. Tokyo's benchmark index has climbed a whopping 38 percent since November.
"Initially, we are seeing a fantastic firework display, but we will need structural change to keep it going. I'm confident we'll see that. I expect [corporate] profits to rise by 35 percent and it's not unreasonable to see stocks go [up] by the same amount as well," he said.
Investors are hotly anticipating the next Bank of Japan meeting on April 3-4, when new governor Asian Development Bank president Haruhiko Kuroda is expected to start putting Abe's money where his mouth is through aggressive easing measures.
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"Japan has a great deal of upside, I would say up to around 30 percent in the course of this year," said Uwe Parpart of Reorient Financial Markets on CNBC's "Cash Flow" on Thursday.
"Foreign investors have driven the Japanese market since November but the big funds are still underweight Japan. Four trillion yen has been bought in Japanese stocks, there is another 6 trillion yen to go just to get to the levels that foreign investors spent in 2005 and 2006 when they were optimistic on [Prime Minister Junichiro] Koizumi's government," said Parpart.