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Reuters News reported that Japanese stocks are expected to rise next year to reach levels not seen in nearly three decades, a Reuters poll found, based on expectations the beaten-down global manufacturing sector will once again gather steam.

The median estimate by 26 analysts and fund managers polled Nov. 11-25 put the Nikkei benchmark .N225 up 7.3% at 25,000 by end-2020, compared with Monday’s close of 23,292.

Key notes

  • That forecast is also 2.3% above the Nikkei’s October 2018 peak of 24,448, which was its highest since 1991.
  • The Nikkei has risen 16% this year, with the market benefiting from hopes of a truce in the U.S.-China trade war in the past few months.
  • Low interest rates on the dollar after the US  Federal Reserve’s three rate cuts this year would underpin risk asset prices globally.
  • Many investors think earnings will recover next year once Washington and Beijing strike a tentative trade deal, possibly unleashing pent-up capital spending demand in the high-tech sector.
  • Some market players noted the Japanese economy is hardly in good shape.
  • Investors also said the US  presidential election will be a major risk factor.

FX implications

The yen crosses are closely correlated to performances of global equities and the Nikkei in particular. Flows back into Japan is bullish for the yen.