A Throwback to 1989’s Exuberance in Market Celebrations
Japanese stocks surged to a historic peak, reaching levels not seen since the bubble economy of 1989, as favorable valuations and corporate reforms attract foreign investors seeking alternatives to the volatile Chinese markets. The Nikkei share average rose to 39,156.97 points, surpassing the previous intraday record of 38,957.44 points from the final trading day of 1989. Closing at 39,098.68 points on Thursday, the Nikkei marked a 2.19% increase.
This achievement is significant as it took 34 years for the Japanese market to recover, setting a record for a major market. The timeframe surpasses Wall Street’s decade-long recovery from the 1929 crash and Great Depression. The strong performance of the Nikkei, up almost 17% this year and 28% in 2023, reflects a departure from deflation and signals a new era, according to market analysts.
Despite economic challenges such as a recession in Japan, global conflicts, inflation shocks, and rising interest rates worldwide, the Nikkei has thrived. Trade exposure and a weak currency benefiting exporters have contributed to its resilience. The milestone not only signifies a break from decades of lackluster performance but also attracts global investors who we
Corporate governance changes in Japan, leading to buybacks and the unwinding of cross-holdings, coupled with foreign investments, including Warren Buffett’s significant investment in 2020, have boosted market confidence. Foreign investors injected ¥6.3 trillion ($42 billion) into the equity market in the previous year, with a net ¥1.16 trillion in Japanese equities in January alone.
The rally is further fueled by a robust earnings season, a depreciating yen (approaching 150 per dollar), and expectations that the Bank of Japan will maintain its ultra-easy monetary policy. Bank of America’s Asia fund manager survey for February indicates unwavering optimism in Japan, with nearly one-third of participants anticipating double-digit returns in the next 12 months. Japan stands out as the favorite market in the region, with fund managers showing a preference for semiconductor and bank stocks. This historic peak underscores Japan’s renewed prominence in the global investment landscape.
