The Bank of Japan's massive stimulus to pull the economy out of two decades of malaise has altered the outlook for Japanese assets, according to a Reuters snap poll of analysts conducted after the central bank shocked markets with its radical shift in policy.
The bold plan to inject $1.4 trillion into the world's third-largest economy in less than two years has already pushed the yen to near 100 to the dollar, the lowest since April 2009, and Tokyo's Nikkei <.N225> to a nearly five-year high.
It caught the market by surprise, forcing many analysts to revamp their forecasts for the Nikkei, 10-year JGB yield and the dollar/yen.
Analysts now expect the Nikkei, up nearly 30 percent so far this year, to rise 40 percent in 2013 to 14,500, the highest since June 2008, while the yen will likely slide 18 percent against the dollar to close the year around 102 to the dollar.
Just a month ago, the Nikkei was expected to reach 14,000 by year-end while the latest Reuters foreign exchange poll - on April 3 - showed the dollar trading at 98 yen in twelve months.
If the index were to complete the feats the poll projects, it would be the biggest annual rise since 2005 and should easily make the Nikkei the developed world's best performing stock market this year.
"As the BOJ's 'new dimension of monetary easing' has changed where the Japanese market is heading, we should reset our targets in order to maintain our bullish stance on the Japanese stocks," said Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo.
"The BOJ's easing has take the markets into an entirely 'new stage', so I believe we too will need to adjust our target accordingly."
BNP Paribas currently has a year-end target of 13,000 for the Nikkei, which is about 3.0 percent below where it was early Thursday.
The benchmark index has surged more than 50 percent since mid-November, when Shinzo Abe promised expansionary fiscal and monetary policies, dubbed "Abenomics", to revive the ailing economy during his election campaign. He was elected prime minister the following month.
Foreign investors ploughed 6.5 trillion yen ($65.3 billion)into Japanese equities during the same period, according to data from the Ministry of Finance.
Despite the rally, Japanese equities are slightly cheaper than their U.S. peers, with a 12-month forward price-to-earnings ratio of 13.3 versus the S&P 500's 13.5, according to data from Thomson Reuters Datastream.
DOLLAR TO 102 YEN?
Since mid-November, the yen has weakened around 24 percent.
The Japanese currency is expected to fall to 102 yen to the dollar by the end of this year, its lowest since October 2008 and 2 percent below Thursday's level, a survey of 19 analysts showed. It hit a near four-year low of 99.88 to the dollar on Wednesday.
"The much-bolder-than-expected monetary easing under new BOJ Governor Haruhiko Kuroda is set to have a major impact on domestic and international investment flows," said Yunosuke Ikeda, chief FX strategist at Nomura.
"Our new target is 100 yen at end-June 2013, 102 at end-2013, and 106 at end-2014. During second quarter, as asset allocation peaks, we think overshooting towards 105 is possible."
UBS on Wednesday revised its dollar/yen forecast to 110 yen by the end of 2013, from 100.
The BOJ's proposed massive foray into government bonds - buying 7.5 trillion yen of bonds each month - has jolted the debt market.
The 10-year yield rose to 0.620 percent on Thursday morning, from a record low of 0.315 percent hit on Friday, a day after the central bank announcement.
According to the median forecast of 15 analysts polled by Reuters, the 10-year yield is seen at 0.60 percent by the end of 2013, down from 0.795 percent at the end of last year. The forecast ranges from 0.10 to 0.90 percent.
On Wednesday, Mitsui Life Insurance, Japan's fifth-largest with assets of about 6.5 trillion yen under management, said it plans to slow the pace of its purchases of long-term Japanese government bonds, although it aims to increase the duration of its investment portfolio.
($1 = 99.5050 Japanese yen) (Additional reporting by Lisa Twaronite in Tokyo, and Sumanta Dey, Yati Himatsingka and Rahul Karunakar in Bangalore; Editing by Richard Borsuk)