At the same time, consumer spending has been hurt by worsening labour market conditions and falling asset prices, however Citi analysts expect the deterioration in consumer spending to be modest, as sharply lower energy costs continue to support consumer purchasing power.

In Citi's opinion, the near-term focus of economic stabilisation appears to have shifted from monetary policy to fiscal policy. In March, the Bank of Japan (BOJ) increased its outright purchase of long-term Japanese Government Bonds (JGBs) from 16.8 trillion yen annually to 21.6 trillion yen. Moreover, policymakers decided to provide subordinated loans of up to 1 trillion yen to large financial institutions in order to support their capital base.

Conditions for share price appreciation are gradually coming together. Some bright spots include a shift to a weakening yen trend, the Implementation of major stimulus measures in the US and China, a bottoming in US housing starts and progress in adjusting inventories of manufactured goods. On top of this, Citi analysts believe Japan is likely to roll out full-scale stimulus measures and initiatives to bolster the stock market, following major US efforts to clean up bank balance sheets and ease monetary policy.

Citi analysts are overweight in domestic-demand, financial and agriculture sectors, which all stand to benefit from economic stimulus policies. On the other hand, they are underweight in defensives such as the electric power and gas sector (charges may be lowered in April), and pharmaceuticals (pressured to cut prices by US healthcare policies).