Nikkei tipped to top 20,000 in 2015

Mia Tahara-Stubbs special to CNBC
Pedestrians walks past a share prices board showing the numbers for the Tokyo Stock Exchange in Tokyo
Kazuhiro Nogi | AFP | Getty Images

Japan's benchmark Nikkei 225 index is set to climb further in 2015, despite already rising more than 70 percent over the past two years, analysts say.

"Corporate earnings will be stronger, and drive up the Nikkei to 22,500 by September," said Eiji Kinouchi, Daiwa Securities' chief technical analyst and one of Tokyo's leading bulls. He is forecasting the Nikkei will end the year at 22,000. Daiwa forecasts the U.S. dollar will fetch around 124-134 yen in the autumn, but the pair will likely slip back to around current levels of 120 yen by the end of 2015.

Earnings growth for major Japanese companies will likely be in the double digits and help to bolster Japan's shares, according to a Jefferies note. That, the brokerage's analysts believe, will lift the Nikkei to 19,500 even if the yen stabilizes at the current 120 yen level against the dollar. Jefferies is forecasting the U.S. dollar will strengthen to 124 yen in a year's time.

Headwinds lurking ahead

Some are a little more cautious. "The dollar-yen moved a lot in 2014 and there are some headwind risks lurking ahead next year, such as the Greek elections, the Russian ruble crisis and volatile oil prices," said Kengo Suzuki, Mizuho Securities' chief currency strategist.

Read More Nikkei to go from 'ho-hum' to 'home run' in 2015

Suzuki is forecasting the yen will strengthen, with the U.S. dollar trading at just 113-115 yen in the first months of 2015; if the widely expected U.S. rate hike takes place the over the summer, he reckons that will spur a return to more dollar buying. Assuming the rate hike takes place, Suzuki sees the pair at 128-138 by the end of the year.

Nikkei tops 18,000 on easing expectations

Still, Mizuho sees the Nikkei hitting 20,000 around June, before downshifting toward 18,500 by the end of the year. Analysts at the brokerage believe a rate hike in the U.S. is likely to drive investors to sell stocks, in the U.S. and also in Japan.

Will the Bank of Japan step up?

Massive easing measures from the Bank of Japan (BOJ) have helped to drive up the country's stock markets, as well as pressuring the yen.

Read More China stocks roar back in 2014, trashing India

Another weak set of data last week is fuelling speculation the central bank will act again in an attempt to pull the country out of its decades-long deflation trap. In November, industrial output posted a surprise 0.6 percent on-month drop, and core consumer inflation only rose 0.7 percent once the effect of April's sales tax hike was stripped out.

The BOJ is targeting a 2 percent inflation rate, but analysts are increasingly skeptical its efforts are sufficient. Deutsche Bank, however, expects the upward pressure on prices from yen depreciation should start exceeding the dampening effect of lower oil prices. But even then, the data suggests consumer price inflation would remain stable at around 1 percent, regardless of oil or yen volatility, the bank said in a note.

Both Mizuho's Suzuki and Deutsche Bank are expecting another round of quantitative easing, perhaps in October. Others are expecting the next round earlier: Capital Economics forecast in a note the BOJ will act at its end-April policy meeting.

Capital Economics is also expecting the Nikkei to hit 20,000 and the dollar to be fetching 140 yen by the end of 2015.