By Ayai Tomisawa
TOKYO (Reuters) - A weaker yen is forecast to help boost corporate earnings and drive Japan's Nikkei to double-digit gains next year, a Reuters poll found on Thursday.
The Nikkei <.N225> is expected to rise to 18,000 by the end of 2014, compared with Wednesday's close of 15,515.06, according to the median forecast of 21 analysts polled by Reuters in the past week.
Market observers said investors would continue buying into exporters, whose earnings are expected to further improve in the coming fiscal year, helped by the yen's weakness.
The dollar has strengthened against the yen after a batch of positive U.S. economic indicators.
Last week, strong U.S. payrolls data boosted risk appetite and raised expectations for the U.S. Federal Reserve to taper its bond-buying stimulus soon.
The dollar/yen was trading around 102 on Thursday, and was close to a five-year high of 103.74 set back in May.
Falls in the yen tend to boost sentiment towards Japanese equities because investors expect the weaker currency will lift companies' competitiveness abroad as well as their overseas earnings when funds are repatriated.
"The Japanese market will likely fare strongly in the first half of the next year and the Nikkei could be flirting with the 20,000-mark," said Ryota Sakagami, chief equity strategist at SMBC Nikko Securities, who predicted that the Nikkei may trade at 19,000 in June 2014, the highest call of all respondents.
By mid-2014, the Nikkei is expected to reach 16,000, according to the respondents' median forecast.
Still, the surge is unlikely to be all-inclusive. Starmine data shows earnings will probably stagnate or drop for a fifth of the 225 companies that make up the Nikkei index.
Traders see automotive and electronics as sectors to watch as well as such reflationary stocks, such as financials and real estate firms, because they expect the Bank Of Japan to ease monetary policy further.
"Inflation appears to be picking up in Japan, and how the BOJ views this is a point of interest," said Michiro Naito, executive director of equity derivatives strategy at JPMorgan.
"As the BOJ is expected to ease further to counter the increase in the consumption tax, how aggressively the bank will ease needs to be watched as well."
Propelled by the Japanese government's massive fiscal and monetary stimulus to revive the economy, the benchmark Nikkei has risen nearly 50 percent this year.
It is gunning for its best yearly performance since 1972 and handily outperforming the U.S. S&P 500's <.INX> 25 percent rise this year and the pan-European STOXX Europe 600's <.STOXX> 12 percent gain.
Other market participants remained wary about risks including a slowdown in consumption when the government hikes sales tax to 8 percent from the current 5 percent in April.
It has helped spur a boom in residential property and prompted many shoppers to buy big ticket items before the deadline.
"This (sales tax hike) may dampen business and household spending," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Unless the government comes up with a measure to counter the negative effect from the sales tax hike, consumer sentiment may see a downturn, and it could trigger a correction in the stock market."
Reflecting such uncertainties, forecasts for the Nikkei ranged from 9,000 to 19,200 at the end of next year.
(Polling by Hari Kishan; Analysis by Hari Kishan and Reshma Apte; Editing by Eric Meijer)