It’s been a good few weeks for the Japanese stock market. The Nikkei 225, a major index for the Japanese stock market, broke a 37-year high set in 1989 just under two weeks ago. The rally regained steam on Monday, when the Nikkei 225 surpassed 40,000 points for the first time in morning trading.
The rise was driven by technology stocks, which drove much of the Nikkei’s rise. Tokyo Electron, which makes semiconductors and chipmaking equipment, has grown more than 140% in the past year. The Nikkei 225 was the best-performing Asian market in 2023, recording a gain of more than 25%.
Foreign capital is piling into the Japanese market, following big-name investors such as Warren Buffett, CEO of Berkshire Hathaway, who expanded his holdings in major Japanese trading companies last year. BlackRock, the world’s largest asset manager, and Amundi Asset Management, Europe’s largest money manager, expect earnings growth and company-wide changes to maintain strength, according to Bloomberg.
One reason for optimism could be the strong performance of Japanese companies. According to Goldman Sachs analysts, earnings for the final quarter of 2023 were 45% higher year-over-year. The weaker yen is also playing a role, making Japanese exports cheaper while boosting the value of profits repatriated from abroad.
And then there’s the push for better corporate governance. The stock market is pushing the country’s sprawling conglomerates, known as keiretsu, to rationalize its organizational structure. It also encourages companies to make public plans to increase their capital efficiency.
Analysts believe that the Nikkei’s growth is not over. The Nikkei breaking above 40,000 “is likely to be a more bullish signal rather than stoking any fears that Japanese stocks are overbought,” Charu Chanana, head of FX strategy at Saxo, told Bloomberg.