By Kevin Buckland

TOKYO (Reuters) – Japan’s Nikkei 225 share average will extend its recovery from the worst sell-off in 37 years during the rest of 2024 before pushing to an all-time high by the end of next year, according to forecasts in a Reuters poll.

The Nikkei will rise 7% to 40,000 by year-end before rallying to 42,000 by end-June and then to a record 42,500 by the end of 2025, median forecasts from an Aug. 8-20 poll of 18 analysts showed. Japan’s benchmark stock index closed at 37,388.62 on Monday.

“Valuations remain attractive, interest rates remain low, and corporate reforms continue to progress,” said Tony Sycamore, a markets analyst at IG.

The Nikkei could suffer another pullback in 2024 “as the Bank of Japan continues to raise rates and due to higher volatility across global markets”, Sycamore said. 

“However, with positioning in the yen much cleaner, I would expect that to play less of a role into year-end.”

The Nikkei surged to an unprecedented 42,426.77 on July 11 but then retreated sharply amid a dramatic rebound in the yen from its weakest since the end of 1986. 

Traders unwound carry trades funded with the Japanese currency en masse after the BOJ unexpectedly shifted to a hawkish stance, while a run of weak U.S. economic data spurred bets the Federal Reserve would need to rush to cut interest rates.

Surprisingly soft payrolls data at the start of this month was the catalyst for the Nikkei to crash 12.4% on Aug. 5, touching its lowest since Halloween and ending with its biggest one-day drop since Black Monday in 1987.

Improved U.S. macro indicators since then and a BOJ backtrack have seen equity markets stabilise, and analysts overall expect the strong financial results and corporate reform push – led by the Tokyo Stock Exchange and backed by the government – that lifted the Nikkei at the start of the year to continue to buoy it into next year.

Eleven of 13 analysts who responded to an additional question on earnings predicted they would outperform expectations over the rest of this year.

Analysts were split, however, on the likelihood of more near-term volatility, with six of 13 respondents saying an additional correction of 10% or more for the Nikkei by the end of September was likely, versus seven who said it was unlikely.

“The stock price has already fallen, and appears to be undervalued,” said Hiroshi Namioka, a strategist and fund manager at T&D Asset Management, who does not foresee another near-term pullback.

“Institutional investors with short evaluation periods, such as one year, may be reluctant to buy, but for individual investors with long-term investments, this large drop seems to have been an extremely attractive buying opportunity.”

(Other stories from the Reuters Q3 global stock markets poll package)

(Reporting by Kevin Buckland; Additional reporting by Junko Fujita, Brigid Riley, Noriyuki Hirata, Hiroko Hamada and Mayu Sakoda; Additional polling by Purujit Arun and Sarupya Ganguly; Editing by Helen Popper)

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