Japan's stocks may have surged more than 40 percent so far this year, but some analysts believe they are poised to climb even higher.
"The outlook for certain sectors and certain stocks is extremely positive right now," said Nicholas Weindling, fund manager for JPMorgan Asset Management, adding he likes real-estate stocks as land prices are starting to rise.
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Rising inflation expectations are a key driver, he said. "In the past, people would delay their purchases. Now there's a reason to buy," he said. "It doesn't matter whether its land or other kinds of goods."
JPMorgan is keeping a strong domestic bias, focusing on financial, retailer, cement, construction and Internet plays.
While some are concerned that the upcoming consumption tax may derail Japan's economic recovery, Weindling noted it's been discussed at length and is well-known by the market.
"The important thing is to focus on the data, which is getting better and better," he said, citing recent readings on gross domestic product (GDP), consumer spending and unemployment data.
In a recent report, Nomura said it expects rising inflation expectations, in combination with plans to spur greater competition by joining the Trans-Pacific Partnership (TPP) free-trade agreement, could signal "twenty years of value traps in Japan could be ending."
Entrenched deflationary expectations have encouraged companies to use free cash flow to pay down debt, but as real interest rates turn negative in Japan, dividends could become the biggest growth area for cash deployment over the next year, followed by mergers and acquisitions and capital spending, the house said.
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It also expects the TPP will spur accountability among Japan's domestic services industries, with competition and takeovers set to rise.
Separately, Nomura's Japanese Individual Investor Market View Index for September indicated most respondents view Japanese equities as the most appealing securities, with 76.2 percent expecting rises over the next three months.
"An increasing number of individual investors are now expecting substantial increases in share prices," it said.
Nomura has a 12-month target of 1420 for the Topix index; it closed Friday at 1218.98. Credit Suisse has a 15,000 target on the Nikkei 225 index for the end of 2013, and a 17,000 target for end-2014; the Nikkei ended Friday at 14,742.42.
But not everyone sees inflation-burnished blue skies ahead.
Capital Economics believes Japan's recent tick up in inflation is just a pass-through of the yen's weakness.
"Had the yen been stable over the past year, overall inflation would therefore probably have remained negative," it said, expecting import price inflation to start falling again soon, based on its forecasts for global commodity prices.
And in any case, "a burst of inflation due essentially to currency weakness and tax hikes is neither sustainable nor necessarily desirable, given the impact on household real disposable incomes at a time when wage growth is still lagging well behind," it said.