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Japan’s main stock market index has climbed past its all-time high after a 34-year wait, exceeding the record level reached during the country’s late-1980s asset bubble.
The Nikkei 225 index of the biggest Japanese companies passed its all time record intraday high of 38,957 during trading on Thursday. It capped a powerful rally during 2024, driven by rises in chip-related stocks.
Takeo Kamai, head of execution services at CLSA in Tokyo, described a mood of “euphoria and surprise” on the trading floor as the number appeared on screens, adding that the final spurt over the line followed strong earnings results from US chipmaker Nvidia overnight.
The latest gains carried the benchmark index above its level on the final trading day of 1989, when 15 Japanese companies ranked among the world’s 20 biggest by market capitalisation. The index closed that day at 38,915.
The Nikkei has risen 16.6 per cent since the start of the year, making it the world’s best-performing major index, as a falling yen lures foreign investors. A weak currency boosts the profits of the export-focused companies that have a heavy weighting among Tokyo stocks.
Money has also flowed into Japanese stocks as investors have pivoted away from China’s markets because of its slowing economy and geopolitical tensions.
The gains in Japan also follow an influx of investment by domestic households taking advantage of a new government subsidised savings scheme.
The peak attained in 1989 has sometimes been referred to by Tokyo traders as the “iron coffin lid”, with its apparent unattainability becoming a symbol of the three and a half decades of economic stagnation that followed the bursting of Japan’s stock and property bubble.
“It’s an incredibly important barrier for Japan to have finally broken through,” said Bruce Kirk, chief Japan equity strategist at Goldman Sachs.
“For the last 30-plus years, Japan has been persistently framed in relation to that December 1989 bubble era Nikkei all-time high,” Kirk added. “No matter how well it has done since the market finally bottomed, the narrative has always been tempered with an element of scepticism that references the high-water mark.”
Japan’s broader Topix index, which is more closely followed by professional fund managers, is also closing in on its 1989 peak after a strong rally this year but has yet to strike a new high. On Thursday, the Topix rose just under 1 per cent during morning trading, and is now about 8.7 per cent from its all-time peak.
“Among Japanese investors, there is a feeling of big uncertainty and a sense that the rise has been too much, but we also can’t be left behind so we have to go along,” said Koji Toda, a fund manager at Resona Asset Management.
“Today’s record was driven by a tailwind from US tech stocks but this rally will become genuine when investors feel that they need to buy Japanese stocks for their own reasons.”
Japanese corporate earnings — which have nearly tripled since the bubble era — have provided a further boost as governance reforms over the decade and a half since the Nikkei bottomed in 2009 start to bear fruit.
“The things that [companies] started to do right — improve balance sheets, operating margins — they’ve continued to do right,” said Pelham Smithers, a veteran analyst of Japanese stocks. “And other areas that they needed to get right — such as improve asset efficiency — they’ve started to get right.”
The Nikkei has long been the favourite market benchmark for Japanese retail investors, many of whom bet heavily on its movements through leveraged day trading. However, its weightings are calculated according to stock prices rather than market values, meaning some companies have an outsize presence.
Fast Retailing, the parent company of Uniqlo, commands by far the largest weighting of 10.5 per cent in the Nikkei, despite being half the size of Toyota in terms of market capitalisation. The stock briefly rose more than 2 per cent on Thursday.
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