Japan’s Nikkei 225 Hits 33-Year High, Eyeing Record Peak



Key Takeaways

  • Japan’s Nikkei 225 reaches new 33-year highs, surpassing the 35,000 mark.
  • Economic factors and positive investor sentiment drive the market’s strong performance.

A Rally in Japan’s Equity Market

Japan’s benchmark Nikkei 225 index has been on a remarkable run, breaking past the 35,000 mark for the first time since February 1990. This rally, beginning on January 5, has led the index to scale new 33-year highs. Similarly, the Topix index has been hitting its own 33-year highs. This surge in Japan’s equity market raises questions about its sustainability and whether the Nikkei could surpass its all-time high of 38,195, reached in December 1989.


Yeap Jun Rong, a market strategist at IG Asia, shares an optimistic outlook for the Japanese stock market. Factors like subdued wage data and weaker household spending have allowed the Bank of Japan to maintain ultra-accommodative policies, boosting market prospects. Yeap suggests that equities can continue benefiting from this supportive policy environment, with additional upside potential due to longer-term tailwinds such as the Tokyo Stock Exchange (TSX) implementation of corporate governance measures.

Corporate Governance Measures by TSX

TSX has taken significant steps to improve corporate governance, including a directive for companies to “comply or explain” if they are trading below a price-to-book ratio of one. This measure aims to ensure companies use their capital efficiently, and those failing to meet this criterion could face delisting as soon as 2026.


Bank of America (BofA) has called the current Japan rally a “déjà vu,” drawing parallels with the Nikkei’s rise between April and June 2023. BofA analysts attribute part of last year’s rally to the highest Shunto wage hike in 30 years. Looking ahead to 2024, they anticipate even higher wage increases from major Japanese companies, which could significantly impact the market. BofA suggests that rising real wages, coupled with weakening cost-push inflation, are key factors influencing the market dynamics.

Factors Driving the Market Rally

Yeap attributes the market rally to several factors, including hopes that Japan will break free from its deflationary cycle and benefit from supply-chain diversification amid the deteriorating US-China relationship. Additionally, the weakening yen has attracted more inflows from overseas investors. According to Morningstar Fund Research, net inflows into Japanese equity funds substantially increased in December. However, the Bank of Japan’s negative interest rate policy (NIRP) and the yen’s recent strengthening could impact these trends.

Technical Analysis and Future Outlook

On the technical front, while BofA notes that Japanese market valuations are not overly stretched, they are not as low as during the April to June 2023 rally. Consequently, the equity market may not have as much room for upside growth, but further increases are not ruled out. The current median price-to-earnings ratio stands at 14x, close to its peak of 14.5x. Yeap cautions that short-term overbought conditions might necessitate a brief pause in the Nikkei’s ascent. Still, he expects the upward trend to continue, potentially leading the index to retest its 1990 high in the coming months.

Market Performance Amidst Regional Trends

On Monday, the Nikkei rose 0.62%, and the Topix gained 0.84%, outperforming other Asian markets. This performance highlights the unique trajectory of Japan’s equity market, driven by distinct economic and policy factors. As global investors watch, the Nikkei 225’s journey towards retesting its historic highs is a testament to the resilience and potential of Japan’s stock market.


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