The Nikkei 225 stock index powered to an all-time peak on Thursday, closing up nearly 2% at 39,029 and eclipsing its previous record set over 30 years ago in 1989. The blistering rally was fueled by strong quarterly earnings from Japanese banks, electronics firms and consumer product companies, prompting a surge of foreign investments in Japanese equities.
With solid corporate profits, ongoing restructuring efforts and a weaker yen boosting exports, analysts foresee the Nikkei’s ascent continuing, with Bank of America strategists upgrading their year-end 2024 forecast to 41,000. The Topix index also hit a new high, leading investors to pour over $15 billion into Japanese stocks last month.
However, lingering economic headwinds remain that could dampen the euphoria. Prolonged high inflation continues to sap domestic consumption, as seen in the surprise contraction in Japan’s GDP for a second straight quarter. The yen’s chronic weakness, last trading near 32-year lows against the dollar, has diminished consumer purchasing power.
While a cheap currency has benefited exporters like Toyota, which upgraded its profit outlook, policymakers have warned of the currency’s extreme volatility. With spring wage talks underway, the Bank of Japan may phase out its negative interest rate policy if higher salaries spur meaningful inflation through increased spending. If you want you can also read- Germany Surpasses Japan as World’s 3rd Largest Economy.
For now, Japan’s season of optimism rolls on, with corporate governance reforms and global investors taking their cues from Warren Buffett’s bullishness on Japanese shares. But between an elusive economic recovery and currency flashpoints, the record-setting Nikkei still faces tests of its durability as the rally enters its fourth decade.
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