The European Central Bank's (ECB) Japan-style quantitative easing (QE) program is just the trigger needed to put the sputtering Nikkei rally back on track, say Tokyo stock strategists.
"Money will be freed up to flow into equities and some of that will come into Japanese shares," said Nomura equity strategist Masaki Motomura. And, with a weaker yen expected to boost recurring operating profit at Japanese companies, the Nikkei is headed to the 18,000 level by March, he said. The Greece election may have sparked a decline on Monday, but the results do not fundamentally change Nomura's position that Japan stocks are set for a rally.
The ECB last Thursday pledged to buy 60 billion euros ($70 billion) worth of private and public bonds each month until September 2016 in a program that could amount to 1.1 trillion euros, surpassing market expectations.
Foreign flows into Japan have driven the so-called Abenomics rally - ownership of Japanese equities rose for two consecutive years in 2012 and 2013, reaching a record high of 30.8 percent in 2013. And foreign investors are active: on any given week, they account for around 70 percent of trading volumes on the Tokyo Stock Exchange.
The Nikkei rallied in 2013, and again last November, after the Bank of Japan (BOJ) surprised markets by expanding asset purchases to 80 trillion yen. The Nikkei surged by nearly 15 percent between October 31 – when the BOJ fired its second bazooka – and its most recent high of 18,030 hit on December 8.