This photo taken on May 2, 2024 provides a general view of the entrance to Tokyo Stock Exchange’s (TSE) headquarters building in Nihonbashi area of Tokyo. Japanese stocks have had an exceptional year so far in 2024, breaking records left and right and surpassing past all-time closing highs to mark fresh all-time records on Thursday closing. Richard A. Brooks | Getty ImagesJapanese stocks have experienced incredible gains this year. In February, their benchmark index, the Nikkei 225, broke through its 1989 peak for an all-time closing high performance; just this week both this index as well as broad-based Topix achieved all-time closing highs at their closing highs for all time closing highs opening at their all time closing highs before hit fresh all time closing highs for another record setting performance since 1989! How did markets reach these levels, particularly the Nikkei which set new records twice this year? Earnings have been driving this market rally according to Jesper Koll, expert director at Tokyo-based financial services provider Monex Group in Tokyo and stated in an interview with CNBC: Corporation Japan is now reaping rewards of decades of operational restructuring with breakeven points at world record lows allowing even minimal increases in top line revenues sparking explosive profit growth.” Rengo also reported that large firms with 300 or more union-backed employees increased wages by 5.19 % while smaller ones did so 4.455%. “[You can’t have] a wage increase of 5 percent and sales rising less than 4 percent, for instance,” Koll noted. More importantly, Japan remains “an oasis of stability.” He noted the country’s stable monetary, fiscal and regulatory policies as key pillars in supporting financial markets. When the Nikkei crossed over 40,000 points for the first time last March, Koll predicted “it is completely reasonable” that it will reach 55,000 points by year’s end 2025 – something he reiterated when speaking on CNBC this week: “My prediction stands firm – The Nikkei 225 will rise towards this goal before year end”. “Koll previously predicted that the Nikkei would hit 40K within 12 months from July 2023; should his forecast come true, this would mark an upswing of 37%.” He was later proven correct when the index reached that level within eight months of being bullish on it.How sustainable is the rally?How long will this rally last?A note by Nomura published Thursday noted that gains on Nikkei and Topix may not appear sustainable. Analysts noted that these events had led to short covering in futures markets. Yet these hasty gains may turn out to be sustainable if April-June corporate earnings surprise to the upside or Japanese equity markets see more long-term money flowing in.” Nomura suggests that futures will play an integral part in driving Japanese equity market movements in the short-term, noting that as of June 28, foreign securities companies’ net short interest in futures reached 17,000 contracts if short positions were closed out – this would cause an estimated boost of 2-3% on topix from its levels on June 28.” Nomura analysts calculated that their calculations would put the Topix index at 2,875 and Nikkei 225 index at around 40,600; both have since exceeded Nomura’s estimation, although not by much. “We will keep an eye on whether Japan-listed domestic equity investment trusts/ETFs as well as U.S. listed ETFs (that have seen outflows) start seeing increasing inflows,” according to Nomura analysts.
Social Share
