Further Nikkei outperformance likely

The Nikkei rose by 60% in 2013, the largest increase in decades. A similarly stellar performance this year is obviously unlikely, but we still see room for further gains both in 2014 and 2015. While equity valuations are looking stretched, an extended period of quantitative easing and a further weakening of the yen should provide additional support for asset prices. Meaningful structural reforms and cuts in corporate taxes would be an added bonus. We now expect the Nikkei to climb to 17,000 by end-2014, and to 18,500 by the end of next year.