After reaching an all-time-high on February 22, Japan’s benchmark Nikkei Stock Average hit the important psychological 40,000 level on March 4.
After reaching an all-time-high on February 22, Japan’s benchmark Nikkei Stock Average hit the important psychological 40,000 level on March 4.
The Nikkei ended the day at 40,109.23, which is up 198.41 points, or 0.5%, over Friday’s close. The index rose under the influence of semiconductor equities. Semiconductors have come out of the shadows on the Japanese equities market due to increased demand to the rising use of generative artificial intelligence.
While semiconductor stocks are not common on the on the Tokyo exchange, several names among their suppliers, such as Tokyo Electron and Advantest led gainers by 2.4% and 3.7% respectively. As our sister publication money.it noted, the emphasis on chi making spurred other high tech large caps such as SoftBank Group forward as well. The trend is worldwide, as witnessed by the U.S. chipmaker Nvidia closing on Friday, March 1, with a market cap of over $2 trillion.
A new ATH climate
The psychological break-through comes two weeks after the index beat the record of 38,915.87 set on December 29,1989. Moreover, the 34 year-old record was set with price-to-earnings ratios at over 60x, compared to only 17x now. While the old high marked a turning point in Japan’s economy for the worse, the conditions this time are different.
Besides the lower price-to-earnings ratios, the cheap Japanese Yen is also a factor. However, the weak currency is also a cause for some concern, as continued weakening of the Japanese yen may take a good thing too far. The U.S. dollar has strengthened about 7% against the yen this year and is now at normal market maximums.
For several reasons, the Japanese equities market is set for continued growth. Foreign investors concerned about the Chinese market for internal reasons (as in real estate implosions), or external ones (as in continued tap dancing around U.S. sanctions, be it for support Russia’s war effort or China’s state espionage) yet wanting to keep a foot in Asia are returning to Japan.
Foreign and domestic investors rushing in
Domestically, the revised Nippon Individual Savings Account, or NISA, is fueling local interest in Japanese equities. While NISA has been around since 2014, an overhaul effective on January 1, 2024 promoted growth through stock purchases while maintaining a savings direction as well. The new program doubles the amount allowed to be spent on growth, from 1.2 million to 2.4 million yen. Every individual can keep 18 million yen in NISA, tax free, permanently.
