Japan’s Nikkei 225 Index Surpasses All-Time High, Ending 34-Year Wait
After a long and arduous wait of 34 years, Japan’s main stock market index, the Nikkei 225, has finally climbed past its all-time high. This milestone exceeds the record level reached during the country’s late-1980s asset bubble. The index, which comprises the biggest Japanese companies, surpassed its all-time record intraday high of 38,957 points during trading on Thursday, closing above 39,000 for the first time ever. The closing level of 39,098 was described by one sales trader as the “psychological closure everyone wanted.”
The record-breaking rally of the Nikkei 225 during 2024 was primarily driven by rises in chip-related stocks. Traders on dealing floors across Tokyo reported standing ovations, whoops, and cheers. Takeo Kamai, head of execution services at CLSA in Tokyo, described a mood of “euphoria and surprise” on his firm’s trading floor. He added that the final surge over the line had clearly been driven by strong earnings results from US chipmaker Nvidia overnight.
In an impromptu press conference held on his firm’s Tokyo trading floor, Nomura’s chief executive, Kentaro Okuda, attributed the market’s success to Nvidia’s results, which allowed investors in Tokyo to come into the market with a “sense of confidence.”
The latest gains have 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 capitalization. The index closed that day at 38,915.
The Nikkei has risen 17.5% since the start of the year, making it the world’s best-performing major index. A falling yen has lured foreign investors as a weak currency boosts the profits of export-focused companies that have a heavy weighting among Tokyo stocks. Additionally, money has flowed into Japanese stocks as investors have shifted away from China’s markets due to 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-subsidized savings scheme.
The peak attained in 1989 has sometimes been referred to by Tokyo traders as the “iron coffin lid,” symbolizing the country’s three and a half decades of economic stagnation. Bruce Kirk, chief Japan equity strategist at Goldman Sachs, emphasized the significance of breaking through this barrier, stating, “It’s an incredibly important barrier for Japan to have finally broken through.” He further added that for the past 30-plus years, Japan has been persistently framed in relation to the December 1989 bubble era Nikkei all-time high. Despite its impressive performance since hitting rock bottom, the narrative has always been tempered with skepticism referencing the high-water mark.
Japan’s broader Topix index, which is 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 closed 1.27% higher and is now about 8.5% away from its all-time peak. Strategists at Bank of America forecast that the Nikkei will end the year at 41,000 while the Topix will reach 2,850, just short of its all-time high of 2,884 points.
Japanese corporate earnings, which have nearly tripled since the bubble era, have provided a further boost as governance reforms over the past decade and a half start to bear fruit. Pelham Smithers, a veteran analyst of Japanese stocks, highlighted that companies have made significant improvements in areas such as balance sheets and operating margins. They have also started to address other areas that needed improvement, such as asset efficiency.
The Nikkei has long been the favorite market benchmark for Japanese retail investors, many of whom heavily rely on leveraged day trading. However, its weightings are calculated based on stock prices rather than market values, resulting in some companies having an outsized presence. Fast Retailing, the parent company of Uniqlo, commands the largest weighting of 10.5% in the Nikkei, despite being half the size of Toyota in terms of market capitalization. The stock briefly rose more than 2% on Thursday.
