Nikkei to climb to 31,000; U.S. rates, Omicron pose risks: Reuters poll

FILE PHOTO: A man watches an electric board showing Nikkei index outside a brokerage at a business district in Tokyo, Japan, June 21, 2021. REUTERS/Kim Kyung-Hoon/File Photo

By Junko Fujita

TOKYO (Reuters) - Japan's Nikkei share average is set to reach 31,000 by June next year, underpinned by a solid Japanese corporate outlook, but potential U.S. interest rate increases and new coronavirus variants pose risks, a Reuters poll showed.

The median estimate in the Nov. 15-30 poll of 23 analystsand fund managers forecast the benchmark Nikkei index to gain 11.4% from Tuesday's close of 27,821.76 to reach 31,000 by the end of June. This is higher than a forecast of 30,619in the previous poll in August.

Experts say Japanese shares are undervalued relative to a solid corporate outlook. A number of Japanese companies raised their outlook after the quarter ended in September, but the market has not responded on fears the U.S. Federal Reserve might speed up policy tightening to cope with inflationary risks.

SMBC Nikko Securities, which expects the Nikkei to trade at 30,000 at the end of June, warned there is a risk the benchmark could fall by as much as 1,500 points if expected rises in the U.S. federal funds rate send market rates higher.

"If rates rise sharply, valuations of U.S. shares will be significantly adjusted, which would affect global shares," said Masashi Akutsu, chief equity strategist at SMBC Nikko.

The COVID-19 pandemic remains a negative for Japan's stock market. Japanese shares dropped for a third session to their lowest level since Oct. 7 on Tuesday on concerns about how the new Omicron coronavirus variant might hurt the economy.

"Risks surrounding the coronavirus will remain, but there will be new vaccines and drugs to cope with them," said Kentaro Hayashi, senior strategist at Daiwa Securities, who forecasts the Nikkei to rise to 33,000 by June.

"Economic activity will pick up in Japan and abroad irreversibly and the Federal Reserve won't hurry for monetary tightening as long as risks remain in the global economy. We expect the Goldilocks market to continue."

(Reporting by Junko Fujita; Additional polling by Mumal Rathore, Milounee Purohit and Anant Chandak in BENGALURU; Editing by Jonathan Cable and Andrea Ricci)

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