The median estimate of 27 analysts and fund managers polled Feb. 13-25 put the Nikkei benchmark <.N225> up 9.9% at 24,650 at the end of 2020 compared with Wednesday's close of 22,426.19. In November the index was forecast to round out this year at 25,000.

Most forecasts were collected last week, before global markets took a beating.

If the Nikkei did rise to 24,650 that would mark the highest level since 1991, but many analysts have cut their forecasts compared to the previous survey in November as the outbreak of a new flu-like virus in China ripples through the global economy.

On Feb. 25 the Nikkei tumbled 3.3%, its biggest daily decline in more than a year, as investors re-price Japanese equities to reflect an expected decline in exports, consumer spending, and tourism as public health officials struggle to contain the spread of the virus.

"We're going from an economic contraction in the fourth quarter to what will likely be another contraction in the first quarter because of the virus," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

"We won't get a clear picture until companies start issuing earnings estimates around May, so at this point it is hard to say what fair valuations are for Japanese shares."

Japan's gross domestic product, which shrank in the fourth quarter at the fastest pace in almost six years hurt by a sales tax hike, could contract again in the first quarter, economists say, as the virus outbreak roiled financial markets and global trade from late January.

Two consecutive quarters of contraction would meet the definition of a technical recession.

The virus epidemic started in the central Chinese city of Wuhan in December, but rapidly rising infections in Japan, South Korea, Italy and Iran has unsettled investors.

There are signs the virus has peaked in China, where it has claimed more than 2,700 lives. However, investors are worried as the virus has spread to more than 30 other countries, raising the risk of a global pandemic.

Japan's economy, the world's third-largest, would face further downside risks if the virus continues to spread because of its reliance on exports and global supply chains.

"We have changed our Nikkei forecasts recently, because we think the spread of coronavirus infection in China will delay the timing of global recovery to the second half of the year," said Soichiro Matsumoto, chief investment officer for Japan at Credit Suisse.

"From the standpoint of dependence on the Chinese economy, the negative impact is likely to be greater on Japan and Europe compared to the United States."

However, analysts remain optimistic that the economic impact will be temporary.

By Stanley White