Japan's Nikkei index shatters 34‑year record, signaling economic revival

In a momentous occasion that marks the end of an era and the beginning of a new chapter in Japan's economic history, the Nikkei 225, Japan's benchmark stock index, soared to a record high, eclipsing a peak last seen 34 years ago. This historic rally underscores the country's resurgence from decades of economic stagnation to a new period of growth and optimism.

On Thursday, the Nikkei 225 surged 2.1 percent to close at 39,098, shattering its previous high of 38,915.87 set on December 29, 1989. This breakthrough is significant, as it represents a remarkable recovery from years of economic challenges and signals a newfound confidence in Japan's market and economic prospects. Over the past year, Japanese stocks have seen a sharp increase, with the Nikkei up 17 percent since the start of 2024, buoyed by a global wave of rising stock prices triggered by bumper earnings from key players in the tech industry like Nvidia.

The journey to this record high has been long and arduous. It took the Nikkei 34 years to regain its footing, a duration unparalleled by any significant market. This recovery span outstrips even Wall Street's decade-long climb back from the 1929 crash and Great Depression. Market analysts in Tokyo, like Tsutomu Yamada of Au Kabucom Securities, view this milestone heralding a new era, signaling Japan's definitive break from deflation and opening a new chapter of economic growth.

The rally has been driven by a combination of factors, including robust corporate earnings, a weakening yen, and sustained ultra-easy monetary policy from the Bank of Japan. Moreover, significant corporate governance reforms have encouraged buybacks and unwinding of cross-holdings, attracting foreign investments. In 2020, notable investments by figures such as Warren Buffett spotlighted the attractive valuations of Japanese equities, drawing further international attention.

Foreign investors have shown a renewed interest in Japan, with a net investment of 6.3 trillion yen ($42 billion) in the equity market last year alone. This influx is supported by a robust earnings season and the anticipation that the Bank of Japan will maintain its supportive monetary stance. The Asia fund manager survey by Bank of America for February revealed strong optimism for Japan's stock market, with nearly a third of participants expecting double-digit returns over the next 12 months.

Analysts have revised their year-end forecasts upward, reflecting a growing confidence in the Nikkei's performance. However, this enthusiasm is tempered by caution regarding potential short-term momentum interruptions. Yet, the current market conditions are vastly different from the bubble era of the late 1980s, with less speculation and more grounded in solid corporate earnings and reasonable valuations.

Leading the charge in this rally are companies like Fast Retailing Co, chip tester Advantest Corp, and chip tool maker Tokyo Electron, which starkly contrast to the banking and real estate stocks that dominated the index during its last peak. Today's Nikkei boasts a forward price-to-earnings ratio significantly lower than during the bubble era, indicating a market that, while thriving, is not overvalued.

The return of the Nikkei to record highs represents a monumental achievement for Japan, signifying the end of an era of economic malaise and the start of a promising new phase of growth and optimism. As the market rallies, Japan stands poised to redefine its economic narrative, inviting domestic and international investors to participate in its resurgence.

Sources: AFP; Reuters