Photographer: Noriko Hayashi / Bloomberg
Photographer: Noriko Hayashi / Bloomberg
Japan’s Nikkei 225 Stock Average rose above 30,000 yen for the first time since August 1990, as it continued to climb its price to levels not seen since the collapse of the bubble economy.
The meter rose 1.9% to close at 30,084.15 Monday, amid signs that an economic recovery is intact at home and hopes for progress in US stimulus talks. While stocks have hit new heights worldwide in recent months, the Nikkei 225 still has to climb nearly 30% to surpass its record of 38,915.87. This was achieved during the last trading session of 1989, before the index lost more than half of its value in three years after the economic bubble burst.
Japanese equities rebounded after bottoming out in 2012 in the wake of the previous year’s earthquake. Former Prime Minister Shinzo Abe’s efforts to revitalize the economy and enhance business value through better governance since taking office in 2012 supported this year’s price gains ahead of this year’s rally.
The short break of the 30,000 shows that “investors of all kinds are jumping in to buy Japanese stocks with a totally optimistic outlook,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute Co.
That view was confirmed on Monday when Japan announced that gross domestic product grew 12.7% year-over-year from the previous quarter in the three months to December, as exports continued to pick up and government stimulus boosted consumer spending despite the coronavirus.
Continued economic growth is one factor contributing to the strength of Japanese stocks, said John Vail, chief global strategist of Nikko Asset Management Co., who praised the strong export and private capex data. Japan’s reasonable valuations compared to those during the bubble era, as well as improved earnings and shareholder returns, are also strengths, he said.
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“There are always doubters who always refer to demographics,” said Vail, “but that has not prevented massive corporate earnings growth, including from Japan’s extensive global manufacturing base.”
Foreign buyers
According to data from Japan Exchange Group, for the first time in four weeks, foreign investors became net buyers of cash and futures shares, buying about 856 billion yen ($ 8.2 billion) in the week ending Feb. 5. Foreigners, who unloaded more than $ 59 billion in local supplies last year, are expected to turn net buyers in 2021 as the global economic recovery picks up, making export-dependent Japan attractive.
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“We are in a risky environment globally, but the particular strength of Japanese equities is reflected in the interest in stocks that are sensitive to business cycles and value stocks,” said Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “Foreigners may be re-evaluating Japanese stocks.”
Seiji Nakata, CEO of Daiwa Securities Group Inc., called the 30,000 mark breakthrough a “symbolic” event indicating that the Japanese economy is back on its feet. The Nikkei 225 is likely on its way to the 33,000 milestone, he said in an emailed statement.
Like the Dow Jones Industrial Average, the Nikkei 225 is a price-weighted measure. The two most weighted stocks, Uniqlo operator Fast Retailing Co. and SoftBank Group Corp., represent nearly 19% of the index and as such have too great an impact on movements. Both stocks have rallied over the past year, thanks to the pandemic and the latest of Masayoshi Son’s record-breaking buybacks.
The price-weighted nature of the index has been criticized over the years for not accurately reflecting the state of the Japanese stock market. It’s also notable for the lack of some of Japan’s largest stocks, including gaming giant Nintendo Co. and robotic automation specialist Keyence Corp.
Takeo Kamai, chief foreclosure services at CLSA Securities Japan Co., said whether the Nikkei 225 makes a convincing break from the 30,000 mark will depend on how US stocks perform in the coming days as the domestic market lacks its own catalyst. “The move feels very forward-looking,” he said.
The S&P 500 hit an all-time high last week high prior to a three-day weekend, adding more than 1% for the week. Still, Japanese stocks have outperformed their US counterparts so far this year, with the Nikkei 225 up 9.6%, doubling gains in the S&P 500.
– With the help of Toshiro Hasegawa and Shoko Oda
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