Japanese stocks are set to rise 13 percent by year-end as confidence in a global recovery grows, but uncertainty about domestic economic policy and worries about a flare-up of euro zone debt woes will limit gains.A majority of market participants in a Reuters poll also said they thought the benchmark Nikkei index had bottomed out this month when it fell to a six-month low.The consensus prediction for where the index would close the year was virtually unchanged from the March Reuters poll despite a change of government since then and renewed turmoil in financial markets."The market is likely to be heading into a rebound as risks to China's economy recede, while euro zone debt problems are not expected to derail the global economy the way the Lehman shock did," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management."But as we get into next year we're likely to see interest rate hikes as part of various countries' exit strategies, while another euro zone debt problem can't be ruled out. This may lead to a period of downward adjustment then," Akino said.The Nikkei is likely to end 2010 at 11,250, according to the median forecast of 19 market participants polled by Reuters, and claw its way up to 11,375 by the end of June 2011. A similar poll in March predicted 11,000 at the end of this year.On Thursday, the Nikkei finished at 9,928.34. It rose to an 18-month high of 11,408.17 in April.Market players said more positive signs from China, such as its decision to make the yuan more flexible, will likely feed growing confidence about the global recovery, while mid-year corporate earnings provide an additional boost."The world economy is improving, albeit slowly, and risk avoidance will ebb. Immediate worries about European stocks have eased and earnings will improve," said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities."Stocks are likely to rise until August and then they'll probably take a breather in the fall. Then they'll recover back to 12,000."The range of forecasts in the poll suggested some confidence about the outlook. The difference between the highest and the lowest forecast for the Nikkei year-end close narrowed considerably to 3,600 index points compared with 5,000 seen in March. That range was 7,400 in the December 2009 poll.JAPAN ELECTIONOne big question for Japan over the next few months will be its economic policies, with additional uncertainty coming with a July 11 upper house election.Japan set ambitious targets to rein in its debt on Tuesday but admitted they would not be met even under its rosiest growth scenario, setting the stage for contentious tax hikes."We really need to watch what happens over the next month or two with the Japanese government," said Hiroaki Kuramochi, chief equity market officer at Tokai Tokyo Securities."If we end up with a new government it could prompt selling from foreign investors."Longer-term views were divided, with some saying further confirmation that the global economy has improved will keep shares climbing next year, mainly on expectations of earnings improving another notch.The spectre of more European debt problems looms as well, especially among those market players who said they thought the Nikkei has yet to bottom out."The Nikkei often hits its year's high in April and then falls to its lows in October or November, which I think will take place this year too, perhaps even break below 9,000," said Yutaka Miura, senior technical analyst at Mizuho Securities."I think the cause could be European debt problems."(Reporting by Elaine Lies; Additional polling by the Bangalore Polling Unit; Editing by Ross Finley and Jon Loades-Carter)News posted by www.newsinfoline.com
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