Japan's benchmark stock index rose to its highest level in five years on Wednesday, taking its gains this year to just over 35 percent. Time to turn cautious? Perhaps not, say analysts who reckon there are plenty more reasons to push the Nikkei higher.
The Nikkei, the best-performing stock market in the Asia-Pacific region so far this year, pushed decisively above the 14,000 mark to its highest level since June 2008, picking up the baton from European and U.S. markets, which posted strong gains of their own overnight.
The stellar gains in the Nikkei have defied expectations for a pull-back and experts say the trend is unlikely to reverse anytime soon.
"I would still be long equities," said Tai Hui, chief Asia-Pacific strategist at JP Morgan Funds. "The momentum in Japanese and U.S. equity markets is fantastic – don't stand in front of a train."
Aggressive monetary stimulus from major central banks globally has fueled the rally in stocks - the Dow Jones Industrial Average closed above 15,000 for the first time on Tuesday and Germany's benchmark Dax stock index climbed to a record high.
The Nikkei's rally has been driven by expectations for aggressive monetary easing that has pushed the yen down some 15 percent against the dollar since the start of the year.
Ed Rogers, CEO at Rogers Investment Advisors told CNBC Asia's "Squawk Box" there are four good reasons why Japan's stock market is likely to push towards the 18,000 mark by the end of the year:
1. A victory for the ruling Liberal Democratic Party in elections to Japan's upper house of parliament in July.
2. Turning Japan's nuclear reactors back on, which would improve the country's balance of payments position.
3. An adjustment of portfolios in the third quarter that would encourage funds to snap up Japanese shares or risk under performing.
4. Stronger U.S. economic data that boosts the appeal of Japanese shares as a proxy for world growth.
The LDP led by Prime Minister Shinzo Abe controls the Lower House of Japan's parliament and a clear victory in Upper House elections in July would make it easier for Abe to push through the economic policies that have so far cheered investors, analysts said. The LDP meanwhile has said it would restart Japan's nuclear reactors after saftey tests. The reactors were closed following a devastiing earthquake and tsunami in March 2011 that triggered a nuclear crisis.
(Read More: Gains in Nikkei – You Ain't Seen Nothing Yet)
Rogers added: "In the third quarter, everyone in the world that was underweight Japan or zero weight Japan, and that's still most investors, are going to scramble to get exposure to Japanese stocks or they will be at risk of underperforming this year."
Andy Cross, chief investment officer at investing firm Motley Fool, added that in general there was still a lot of cash that was not yet invested in equity markets, suggesting the scope for further gains.
"There's still a lot of money on the sidelines. Think about your alternatives and where to invest capital -- it's still in equities," he told CNBC.
Nikkei's Year-to-Date Performance
Sani Hamid, director, wealth management at Financial Alliance, said a stalling in the yen's weakening trend was one thing that could turn investors cautious toward the Nikkei.
The yen is trading at around 99 per dollar and analysts expect it to weaken to around 110 over the next year, although for now the currency appears to be holding on to the firmer side of the 100-mark.
(Read More: May: the Month Dollar-Yen Finally Breaks 100?)
"We have seen the Nikkei moving higher and the question now is who is a believer and who is a disbeliever," Hamid said. "It is a good time to pick up the Nikkei but we also have to be cautious if the yen fall stalls."
- By CNBC.Com's Dhara Ranasinghe, Follow her on Twitter: @DharaCNBC