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Most stock market strategists have been playing down expectations for 2014 after a mostly rip-roaring bull market this year – which makes the Credit Suisse view on Japan stand out as a real table-pounder.

The Nikkei 225 has surged 47 per cent in 2013, easily becoming the world's best-performing developed-market index with nearly double the return of the S&P 500.

But the way Credit Suisse sees things, there will be no time for the benchmark index to catch its breath next year: They see gains of 20 per cent in 2014, essentially demolishing the long-held view among investors that Japan is stuck in a demoralizing rise-and-fall cycle.

The gains in 2013 were largely due to the policy shift by Japanese Prime Minister Shinzo Abe, whose "three arrows" of structural economic reform were dubbed "Abenomics" and hailed as a promising divergence from two decades of weak responses to crippling deflation and stagnant economic growth.

Next year will bring challenges, Credit Suisse believes, but also additional signs that the country is delivering on early promises.

The three key challenges are the increase in the country's consumption tax in April, concerns about the slowing pace of external demand growth and the risk that the government will implement fewer structural reforms.

However, they believe that actions taken this year will continue to play out next year.

"So far we have seen labour law changes securing longer contracts for temporary workers, Cabinet resolutions creating strategic economic zones, and new individual investment vehicles to encourage households to deploy ¥1,600-trillion (or $15.5-trillion U.S.) of financial assets sitting idle under their mattress and in savings accounts," Credit Suisse said in a note.

They also believe that the Bank of Japan will add more quantitative easing measures – or bond-buying by the central bank, which has been a big source of fuel for U.S. equities over the course of the bull market.

As well, the government could counter the impact of tax increases with fiscal stimulus, perhaps by making deeper and more permanent cuts to the corporate tax rate. Right now, corporate taxes range between 35 per cent and 38 per cent, versus just 24 per cent globally.

"The [tax] move should help spur a reallocation of resources, improve capital efficiency, and eventually trickle down to consumers in the form of higher wages," Credit Suisse said.

The problem with Japan, though, is that its reputation as a wealth-killing market – the Nikkei 225 slid 78 per cent between 1989 and 2012 – is fading fast among investors, giving contrarians a good reason to look elsewhere for less-loved opportunities.

According to the latest fund manager survey from Bank of America, global investors have identified Japan as a key market and have been increasing allocations to it as its benchmark index approaches six-year highs.

The survey showed that a net 34 per cent of asset allocators are "overweight" in Japan, the highest reading since 2006 and up from a net 24 per cent in November.

The concern here is that there may be too much optimism built into the market right now.

Japan has been an extraordinary place to invest in 2013. The question now is whether the market recovery will resemble the United States, whose bull market is now approaching its fifth anniversary … or Japan.

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