Markets Live: Wednesday, 15th May, 2013 What's next for Japan? We have been very optimistic about Japanese stocks with a 2013 end target of 15,000 for Nikkei, thanks to the new economic policy leading to a much weaker yen, and upgrades to earnings forecast. Nikkei is now 14,782. As the yen goes through the 100 barrier versus the USD, we are confident in our target of 110 for end-2013. This would be as much a consequence of the new Japan economic policy as a result of the bull dollar strategy we hold. Nikkei due for a breather Nikkei has risen 78% since its most recent low in June 2012 and 19.5% since the BoJ meeting. Our models show that the equity market is already pricing-in a level close to 110 for the yen, and in our opinion, the Nikkei rally is due for a breather. Our target for Nikkei is 15,000 for 2013 end and 17,000 for end-2014, which corresponds to 1,230 for end-2013 and 1,410 for end-2014 for the Topix index. Investment strategy Our sector recommendations geared to the new BoJ policy are: top sectors - Autos, Real Estate, Tech Hardware, Transport and bottom sectors -Media, Commercial services, Utilities and Household goods. Our long portfolio has outperformed by 1% since publication, and bottom portfolio has underperformed by 1%. Stocks While our top 6 portfolio has underperformed by 1% and bottom basket has outperformed by 0.1%, we still recommend the following: Top 6 basket: Ricoh, Olympus, Mitsubishi Heavy Industries, Honda, Canon, Nippon Steel. Bottom 7 basket: Daito Trust, Taisei, Credit Saison, Oracle Japan, Keikyu, Shimamura, Sankyo.