Gains in Nikkei – You Ain’t Seen Nothing Yet

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The bumper run in Japanese equities - which have surged almost 40 percent over the past four months on optimism that "Abenomics" will bring an end to two decades of deflation – is just getting started, according to investment strategists, who expect larger gains ahead.

According to Ed Rogers, CEO of Tokyo-based hedge-fund adviser, Rogers Investment Advisors, the benchmark Nikkei 225 will hit 20,000-25,000 in the next two to three years – levels not seen since April 2000. This means a jump of 60 percent to 100 percent from current levels.

The highest-ever level for the index - 38,957.44 - was hit in December 1989, before the country's so-called lost decades which began with a stock market crash in 1990.

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"This [Abenomics] is for real – take it seriously – for the first time every information source that I have in Japan, after living there for 26 years, is in agreement. The Japanese, this is their defining moment. If they are going to save themselves from obscurity and failure, this is the time," Rogers told CNBC, referring to Prime Minster Shinzo Abe's push for aggressive monetary easing to beat deflation and drive growth in the economy.

"Since the earthquake in 2011, I don't think people externally understand the amount of soul searching that has gone on in Japan trying to figure out how to solve these problems of 20 years of deflation," Rogers added.

Strategists including Ron Napier, head of Napier Investment Advisors, said while the "easy money has been made," there are further gains in store for the market, forecasting 40 percent upside for Japan stocks by next summer.

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Continued weakness in the Japanese currency is central to Napier's call on the Japan stocks. He expects the dollar-yen will hit 100 as soon as next month, spurred by announcements of further monetary easing at the Bank of Japan's (BOJ) policy meetings in April, and continue to weaken thereafter.

The central bank is set to meet twice next month, on April 3-4 and April 26. At the first policy review meeting under new Governor Haruhiko Kuroda, the BOJ is expected to announce further monetary easing through expanding its asset purchase program.

"They [policymakers] are going to use the April BOJ meetings to crash the 100 level [on dollar-yen] and then they are going to lock it in – threaten the world with an infinite supply of yen. That should make the traders back off," Napier said.

"We are seeing the early green shoots of this [yen weakness] beginning to come to fruition. dollar-yen at 110 will cause the green shoots to show up – we will see import substitution, export volume growth, business fixed investment pick-up, wages rise, and employment rises," he added.

There has already been some evidence of wages rising in the country. Japanese wage earners' total cash earnings rose 0.7 percent in January from a year earlier, climbing for the first time in nine months. Also major exporters such as Toyota this month announced plans to hand out bigger bonuses for the next fiscal year to March 31, 2014.

(Read More: Japan Corporations to Pay Bigger Bonuses, Cautious on Higher Base Wages)

"Raising salaries would impart an inflationary jolt to the economy that could be used to impart a positive domestic shock much like China has done since 2005," said Sean Darby, chief global equity strategist at Jefferies, who raised his year-end target for the Nikkei 225 from 11,860 to 13,393 earlier this month. An upside of 7 percent from current levels.

Watch Upper House Elections

In Rogers' view, the key near-term catalyst for the market will be the Diet's Upper House elections slated for July.

(Read More: 'Abenomics' Is Going to Fail: Mr Yen)

If the Abe's Liberal Democratic Party (LDP), which already controls the Lower House, together with the New Komeito Party wins a majority in the Upper House, it will make it much easier to pass through legislation, he said.

"[If] the LDP wins outright, for three years the LDP is going to control Upper and Lower House and they can pass any piece of legislation they want to. Their political agenda is the political agenda," Rogers said.