Nikkei smashes 1989 record to enter uncharted territory

Japan’s Nikkei 225 Stock Average reached a record high, joining Wall Street stocks in pushing into uncharted territory. 

The blue-chip gauge surged 2.2% to close at 39,098.68, above its past peak formed in 1989, on the back of a rally in technology shares such as Screen Holdings Co. and chipmaking gear producer Tokyo Electron Ltd. after robust earnings from Nvidia Corp. 

Global funds are pouring into Japan, making the nation’s shares into top performers over the past year. The weak yen is offering a further tailwind and boosting Japanese exporters, while the Tokyo bourse’s push to improve corporate governance is raising expectations for more shareholder returns.

“After some recent consolidation, Nvidia’s earnings beat is just the perfect catalyst for Japanese equities to reach record highs,” said Charu Chanana, strategist at Saxo Capital Markets. “And structural tailwinds from geopolitics to corporate reform, as well as a weak yen, continue to suggest that Japanese equities is a story where macro meets momentum and a peak is still rather far.”

Tokyo Electron surged 6%, while Screen jumped 10%. The tech sector led the advance.  

The yen remained weak, staying beyond the 150-per-dollar level, after the release of Federal Reserve meeting minutes that revealed caution about cutting interest rates and amid the Bank of Japan’s continued easy-money policy. Toyota Motor Corp. contributed the most to the Topix’s gain, increasing almost 3%, after Mizuho Securities Co. hiked its price target for the automaker. 

With the pace of the market’s rally catching some by surprise, strategists have raised their forecasts for the Nikkei. Nomura Holdings Inc. and Daiwa Securities Group Inc. lifted their year-end forecasts on Feb. 15. Citigroup Inc. increased its 2024 high forecast for the index to 45,000 from 39,000, saying Japanese equities may reach targets sooner than expected.

Confidence that the economy has shaken off inflation, leading to broad-based gains in asset prices, has also supported sentiment. 

Overseas investors from BlackRock Inc. to Robeco Institutional Asset Management and Warren Buffett have voiced bullishness toward Japanese stocks. Foreigners bought a net of ¥382 billion ($2.5 billion) of Japanese stocks for the week ended Feb. 16, according to the Ministry of Finance. It was the seventh straight week of net buying. 

Adding to bullish factors, earnings results for the fiscal third quarter have been positive at heavyweights such as Toyota and Tokyo Electron. Shares of both companies are up more than 30% from the start of the year. 

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