Nikkei Breaks 34-Year Record, Hits ATH

James Hydzik

22 February 2024 - 15:03

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The Nikkei broke its all time high record on February 22. Does this mean that Japan’s economy is finally out of the doldrums?

Nikkei Breaks 34-Year Record, Hits ATH

Japan’s Nikkei Stock Average closed at its highest level ever on February 22. The benchmark average for Japanese equities hit 39,098 points compared to the previous record high of 38,915.87 set on December 29,1989. As our sister site noted, the all-time high was “fueled by banking, electronics and consumer stocks, as robust earnings and investor-friendly measures fuel a strong rally in Japanese stocks this year.”

The two record highs mark the beginning and end of a period for the Japanese economy of doldrums punctuated by occasional rallies. Japanese media outlet NikkeiAsia is pointing to this new high as an indicator that the doldrums are indeed over, and that the Japanese economy is in a new era. Investors around the globe are coming to the market, many of them for the first time.

Semiconductor strength

In particular, the rise was led by news from American semi-conductor giant Nvidia, which posted stronger than expected earnings and with the figures specified that the growth of Artificial Intelligence is spurring demand for chips. The company’s latest quarterly report (November – January) showed year-on-year revenue tripling to $22.1 billion and net income jumping more than eightfold to $12.3 billion. Japanese semiconductor stocks Tokyo Electron and Advantest rode the news upward and led the Nikkei’s broader average.

Recent Nikkei strength

The climb of the Nikkei Stock Average has been ongoing for some time. The index is up 16.8% year-to-date as of the Thursday high. In 2023, the index rose by 27%, making it one of the best performing stock indices worldwide.

The long-term change in the index has brought analysts to look at the strength of the growth. The consensus, as seen in the NikkeiAsia article announcing the record high, is that structural changes by the Japanese government underpin much of the grow. Long-needed corporate governance reforms helped clean house of opacity in the country’s companies were finally introduced. A weak yen along with a new investment program called the Nippon Individual Savings Account, with tax deferments, also helped spur investment into Japanese stocks.

Geopolitics and chips

The Japanese government is pouring money into the semiconductor industry in an effort to rejuvenate it. The government and industry see the ongoing crackdown on Chinese chip manufacturers by the United States as a geopolitical shift to their advantage. NikkeiAsia quotes Tomoichiro Kubota, senior market analyst at Matsui Securities as saying that, “The geopolitical headwind for Japan has turned into a tailwind.”

As sanctions against Chinese companies by the U.S. continue to be a threat, either for actions against American interests stateside or regarding Taiwan, or for aiding Russia in the latter’s large-scale invasion of Ukraine, Japanese companies stand to benefit.

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