The Nikkei may have just finished its best year since 1972, but its best days aren't behind it, Nomura said, making the market its top global pick.
"Japanese equities will provide the greatest return of all global stocks in 2014," Nomura said in a note.
It's a big call after a big year. The Nikkei ended its final trading session of 2013 on Monday at 16,297.31 points, up 53.7 percent for the year, its best gain since 1972.
(Read more: Yen set for worst year since YMCA topped the charts)
After waning risks and higher stock valuations pushed up shares globally this year, Nomura now expects earnings increases to be the key driver in 2014.
"We forecast earnings per share (EPS) growth of 19 percent for Japanese equities in 2014, the highest of all, followed by European equities at 14 percent," it said.
Nomura forecasts the index will rise to 18,000 by the end of 2014, based on 15 times earnings. But the forecast assumes the U.S. dollar will be fetching 100 yen, compared with current levels around 105. For every 1 yen that the U.S. dollar ticks up, the Nikkei will rise by around 377 points, Nomura estimates.