JPMorgan analysts said in a report that a bear market resurgence in Japanese equities was feasible as long as foreign investors stayed away from the market. However, this tendency also raised questions about how long the market's current recovery would last.

Last Monday, the Nikkei 225 and TOPIX indices in Japan fell more than 20% from their most recent record highs, entering a bear market.

Even though both indices had a significant recovery from their losses, JPM said that "contrarian domestic individual investors and domestic institutional investors" were the main drivers of the recovery.

The broking said that it has not seen a significant trend of foreign investors re-entering Japanese markets and ascribed the majority of the bounce to dip buying.

According to JPM, there was little sign that foreign investors had made a comeback to Japanese markets during the current upswing, despite the fact that they had aggressively sold Japanese stocks last week.

The limited amount of overseas purchasing that did take place was primarily directed toward defensive purchases or bank investments, which are anticipated to gain from increased interest rates.

The Bank of Japan's hawkish signals during a meeting at the end of July, when the central bank boosted interest rates and signaled additional hikes this year, completely destroyed investor confidence in Japanese markets.

Although the stronger-than-expected GDP figures reported on Thursday indicate a bright future for the Japanese economy, it also provides the BOJ with further leeway to hike interest rates.

(Sources: investing.com, reuters.com)