Japan's Nikkei seen edging higher in 2022 before testing 30,000 mark next year: Reuters poll

TOKYO : Japan's Nikkei 225 stock average will strengthen slightly over the rest of 2022 and then rise gradually through 2023 to end that year at 30,600, a level not seen since September 2021, according to strategists polled by Reuters.

The median forecast of 12 respondents was for the Nikkei to finish 2022 at 28,700, about 400 points higher than where it sits now.

The index failed to stay above the psychological 29,000 level last week, sliding with U.S. stocks as investors considered the outlook for Federal Reserve policy amid the risks of a global recession.

Investors have been spooked by a chorus of hawkish rhetoric from Fed policymakers, ahead of their crucial Jackson Hole symposium, which starts on Thursday.

Japan's equity benchmark closed at 29,222.77 a week ago, its highest finish since the start of this year, but ended at 28,313.47 on Wednesday.

Nomura's Tokyo-based chief equities strategist Yunosuke Ikeda - who sees the Nikkei tumbling to 26,000 at year-end, the lowest forecast - says the buoyant mood that brought it to those levels was always unsustainable.

"Stocks have been boosted by optimism over two things, the expectation of Fed rate cuts next year and at the same time a fairly optimistic view of the global economy, but these are self-contradicting assumptions," Ikeda said.

"The Jackson Hole symposium will be a pivot point when the market realises this," he said. "Markets are underestimating the potential for a U.S. recession."

Ikeda said the chance is high of a major sell-off in the coming three months, with volatility rising significantly.

The outlook improves next year, though, with the median of 12 responses forecasting the index will be at 29,500 at end-June.

Only six respondents offered forecasts for end-2023, but the median of those was for a rise above the psychologically significant 30,000 mark.

Societe Generale's Hong Kong-based head of Asia equity strategy, Frank Benzimra, predicted the market would struggle into the middle of next year before rising to 29,200 at year-end.

He said the risks to that view were balanced overall, with downside risks including more weakness in U.S. equities, while upside risks include an easing in U.S. inflation and a "more vigorous" policy response in China.

The People's Bank of China showed its commitment to shoring up the sputtering economy on Monday with cuts to additional lending rates, following surprise easing last week.

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