The Bank of Japan's hefty monetary stimulus should compensate for any unwinding of the U.S. Federal Reserve's ultra-easy monetary policy, lending some support to markets, analysts tell CNBC.
The Fed Chairman Ben Bernanke gave markets some respite this week when he signaled that his signature bond buying program could continue to mid-next year. This "Bernanke bounce," as it has been dubbed led global equity markets to rally.
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But analysts told CNBC, investors shouldn't be fretting over the withdrawal of easy money from the Fed because the liquidity will be replenished by Japanese stimulus.
"Obviously it [tapering] will create a lot of nervousness among markets. But there is something important to bear in mind...at the same time we are seeing several other central banks, such as the Bank of Japan, in the world moving into quantitative easing [QE]," said Herve Lievore, senior economist and investment strategist at HSBC Global Asset Management.
Markets have sold off sharply in recent months, after the central bank started hinting that tapering of its $85 billion per month program was on the cards, with emerging markets bearing the brunt of the sell-off. The MSCI Emerging Markets index has fallen 10 percent since the end of May.
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HSBC's Lievore said, although he expected an "erratic reaction" by markets to tapering, which many analysts forecast to happen in September, long-term fears over the withdrawal of the Fed's easy money were overblown.
"Don't forget, by the end of 2014, the BOJ is set to inject $1.4 trillion into the system, so in terms of actual cash in the system, QE tapering is not a big concern. The concern is how markets will translate that into expectations of liquidity," he added.
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Japan's central bank shocked global markets worldwide in April when it unveiled its massive stimulus plans as part of the government's policy of reviving its flagging economy. Prime Minister Shinzo Abe's "Abenomics" involves a three-pronged approach of aggressive monetary policy, fiscal stimulus and structural reform to end deflation and boost consumption.
Although the $1.4 trillion stimulus announcement excited investors worldwide, many analysts voiced concerns about whether the liquidity will actually flow outside Japan into other markets, as Japanese domestic investors have shown reluctance to invest overseas.
However, data from the Ministry of Finance on Thursday showed Japanese investors turned net buyers of foreign bonds in the week ended July 6, buying their largest amount since September 2012, Reuters reported, marking a turnaround in sentiment.
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"In absolute size, it [BOJ stimulus] will be enough... to mitigate the impacts of QE tapering...depending on the level to which this money gets recycled overseas," HSBC's Lievore said.
Vasu Menon, vice president of wealth management for Singapore at OCBC bank, also told CNBC he expected Japanese stimulus to limit the fallout of Fed tapering on Asian markets.
"The reality is that more of that money [BOJ stimulus] will make its way to the developed markets...But the fact that some of it will make its way to Asia will mean we will not see a huge sell-off in Asia [when the Fed tapers]," he said.
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Menon added, "As long as the tapering happens on the back of stronger economic growth [in the U.S.] then eventually markets will take its focus away from tapering and go back to fundamentals."
—By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie