Japan’s Nikkei hits 34-year high on weak yen

TOKYO: The Nikkei 225 stock index surged through the 37,000-point line for the first time in 34 years on Friday, setting the widely watched Japanese benchmark on track to surpass the all-time high set in December 1989.

At its intraday Friday high of 37,285, the index came within a 5 per cent move of the December 1989 all-time high of 38,915.

“The Nikkei has now gained more than 1,000 points in two days, and that can become infectious. At least that’s the theory. It’s a very important index for building overall market sentiment, even if institutional money follows other indices,” said one Tokyo-based broker.

The broader Topix index, which includes hundreds of smaller companies and gives a much heavier weighting to banks and financial companies, also rose strongly on Friday, hitting its own 34-year high of 2,576 points as the weak yen and a run of strong company results led by SoftBank, Toyota and other blue-chip companies continued to boost market confidence.

The ongoing rally in both indices, which has been driven by some of the most intense foreign buying in years, has reignited hope that Japan’s stock market has finally recovered after the collapse of the “bubble era” more than three decades ago

Ministry of Finance figures show that foreign investors have bought $19bn worth of Japanese stocks since the start of 2024, with $2bn of that added last week. Investment interest in Japan has risen significantly over the past 18 months as global funds have pivoted from China amid concerns around China’s faltering economy and stock market slump.

The rally in Japan has raised eyebrows among some commentators. On Thursday, the Nikkei gained almost 750 points over the day, largely powered by a few heavily weighted stocks.

Pelham Smithers, a veteran strategist of Tokyo equities, said: “We have had some strange days on the Japanese market this year, but possibly none stranger than today.” Smithers added that the Nikkei’s gains had been achieved with more stocks going down than up.

The Nikkei, which has risen 11.65 per cent since the start of 2024, gives heavy weightings to a small handful of stocks that include SoftBank and Tokyo Electron.

But the heaviest-weighted stock in the index is the Uniqlo parent Fast Retailing, with 10.9 per cent and whose shares reached an all-time high on Thursday.

Toyota, which is four times larger than Fast Retailing in terms of market capitalisation, has a Nikkei 225 weighting of just 1.5 per cent.

The yen, whose weakness is a boon to many Japanese companies, continued to slide against the dollar, dipping below ¥149.27 as traders responded to a speech on Thursday by the deputy governor of the Bank of Japan.

Speaking to local business leaders, Shinichi Uchida said that “even if the bank were to terminate the negative interest rate policy, it is hard to imagine a path in which it would then keep raising the interest rate rapidly”.

Investors took the comment as a signal that the central bank’s long awaited “normalisation” of policy after eight years of negative interest rates and yield curve control, would not unleash the sort of interest rate increases that would boost the yen.