Japan’s Stock Market is Set to Take Off This Year, Here’s Why
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Japan’s Stock Market is Set to Take Off This Year, Here’s Why

Japanese stock market indices rose to the highest level since 1990.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Japanese stocks are continuing their stellar 2023 performance, with key benchmark indices surging to the highest level in more than 30 years on Tuesday. The rally is driven by many factors, including easing inflation, weakening yen, and more resilient corporate earnings. 

Japan’s Benchmark Indices Hit Highest Level in Over 30 Years

In 2023, while US equities marked a notable recovery, the Japanese stock market outperformed with even more significant gains.

Notably, Japan’s two major stock indexes, Nikkei 225 and Topix, concluded the previous year with gains exceeding 25%, achieving their most robust performance in a decade. The benchmark gauges were proper among the top gainers in 2023 as the Japanese government urged companies to boost shareholder value while macroeconomic pressures, most notably inflation, faded. 

While the calendars flipped to 2024 last week, the Japanese market’s bullish performance has not changed. On Tuesday, the rally in technology-related shares pushed the Nikkei 225 Stock Average to the highest level in more than 30 years.

More concretely, the indicator climbed to 33,763 in Tokyo, representing its best closing price since March 1990, after the tech-heavy Nasdaq 100 bounced back from last week’s downturn. The more comprehensive Japan’s stock market index, Topix, rose 0.8% on the day. 

Why Are Investors Bullish on Japanese Stocks?

The ongoing rally and upswing to three-decade highs in Japanese stocks should not be a surprise, considering that the market has been “cheap for a long time, along with corporate governance reforms and the effect of Warren Buffett from last year,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank.

The decades-long inflation moderated significantly recently, while the Japanese yen remains relatively cheap. In addition, corporate earnings have become less sensitive to price fluctuations in the foreign exchange market, adding to the appeal of the country’s stocks. 

Analysts believe the market will remain appealing for investors this year, “although the returns may not be as strong as those in 2023,” said Charu Chanana, market strategist for Saxo Capital Markets.

Another catalyst fueling the rally is the influx of new investors from China and Taiwan, as they steer clear from these countries due to regulatory headwinds and concerns about their economic outlook. Also, elections are set to take place on January 13 in Taiwan, with investors sitting on the sidelines to see how the voter affects cross-strait relations.

“I feel that funds are fleeing to Japan. One of the reasons for this may be the yen’s depreciation, but I think it may be that funds are taking flight from China and Taiwan.”

– said Shingo Ide, chief equity strategist at NLI Research Institute.

Among the most significant contributors to Nikkei’s Tuesday advance were rallies in DeNA Co. and Nintendo shares. The electric appliances sector, which includes Sony Group Corp. and Keyence Corp., also witnessed robust gains. 

Considering current market conditions in Japan and the US, do you think the Nikkei 225 can again outperform the S&P 500 in 2024? Let us know in the comments below.