By Ayai Tomisawa
TOKYO (Reuters) - Japanese stocks are forecast to scale a 21-year peak by year-end, boosted by a weaker yen and market expectations Prime Minister Shinzo Abe will prevail in a snap election he called for Oct. 22 in a boost for his broad political and economic agenda.
Respondents in the latest Reuters poll were mostly optimistic too about further rises into 2018, as the world's third-biggest economy continues to hum on higher corporate profits and a buoyant global outlook.
The Nikkei share average <.N225> is expected to trade at 21,000 at year-end, up 2 percent from Tuesday's close of 20,614.07, and 10 percent higher for 2017, according to the median forecast from 28 analysts and fund managers polled by Reuters in the past week.
A move above the 20,952.71 level hit in June 2015 would cap its highest level since 1996. Three months ago, the consensus among forecasters polled by Reuters had the Nikkei at 20,750 at the end of the year.
The index is now forecast to reach 21,150 by end-June 2018.
The Nikkei hit a fresh two-year high this week thanks largely to a weak yen lifting hopes for export-reliant Corporate Japan to post better earnings for the current fiscal year.
"At the first-half earnings season, many companies are expected to raise their full-year earnings forecasts and analysts' EPS consensus will likely rise," said Masashi Akutsu, chief equity strategist at SMBC Nikko Securities.
"If inflation in the U.S. shows even slow growth during the Oct-Dec period, U.S. yields will rise and the dollar will strengthen against the yen, which will help Japanese stocks."
The dollar jumped to a 2-1/2 month high of 113.26 yen <JPY=> last week after Federal Reserve Chair Janet Yellen said the central bank needs to continue with its gradual rate hikes despite broad uncertainty about the path of inflation.
Poll respondents also appear to be optimistic Abe's gamble on a snap election will end up with him keeping his conservative Liberal Democratic Party-led coalition majority in parliament's lower house.
"We remain bullish (on) Japan, and Nikkei/Topix. Abe's decision is being viewed as an opportunity to regain political ammunition for him to push through more reforms and follow through with Abenomics," said Gavin Parry, managing director of Parry International Trading Ltd.
Forecasts for end-2017 ranged from 16,000 to 22,000. They were 16,500 to 23,000 for mid-2018, and 14,500-26,000 for end-December 2018.
Traders said there was caution over tensions between the U.S. and North Korea and how that could impact sentiment though any downside should be limited as long as military action is avoided.
"A positive impact from the weak yen will likely run its course and corporate profit growth (will) slow down in the second half," said Fumio Matsumoto, a senior fund manager at Dalton Capital Japan, who expects the Nikkei to trade at 21,000 by year-end and 21,500 in June 2018.
"But increased demand in goods on the back of the strong global economy will probably continue helping growth throughout 2018."
(To read other stories from the Reuters global stock markets poll)
(Additional polling by Sujith Pai and Indradip Ghosh; Editing by Shri Navaratnam)