Japan Stock Market Hits Record High in 34 Years... "40,000 Also Possible" (Comprehensive)

Bubble Economy Hits Record High
Boosted by Strong Corporate Earnings, Yen Depreciation, and Inflow of Overseas Investment

The Nikkei 225 index, the representative stock index of the Japanese stock market, reached an all-time high. It surpassed the peak set during the bubble economy at the end of 1989 for the first time in 34 years.

[Image source=EPA Yonhap News]

On the 22nd, the Nikkei index closed at 39,098.68, up 836.52 points (2.19%) from the previous session. During the trading day, the index briefly hit 39,156.97, significantly surpassing the previous all-time high of 38,957 recorded on December 29, 1989, during the bubble economy.

The strong performance of Japanese companies is cited as the main reason for this boom in the Japanese stock market. The Nihon Keizai Shimbun previously forecasted that the first-quarter net profit of 1,020 listed Japanese companies would reach a record high of approximately 43.5 trillion yen (about 385 trillion won). It is also estimated that the annual net profit of major Japanese listed companies with a fiscal year ending in March will set new all-time highs for the third consecutive year. The net profit margin relative to sales is expected to reach 5.8%, which would be the highest since the 2008 financial crisis, except for the 6.1% recorded in the first quarter of 2022.

The record-weak yen has also driven foreign capital inflows, acting as a catalyst for the rise. According to data from the Tokyo Stock Exchange, foreign investors' investment in blue-chip stocks on the Tokyo Exchange in January approached 2 trillion yen (about 17 trillion won). The strong earnings report from Nvidia, the leading U.S. semiconductor company in artificial intelligence (AI), overnight also positively influenced related stocks such as Tokyo Electron and SoftBank Group in the Tokyo market. These two companies closed up 5.97% and 5.14%, respectively, compared to the previous session.

Automobile stocks also joined the rally. Toyota Motor Corporation recorded an all-time high stock price on the day, with its market capitalization surpassing 57 trillion yen (about 500 trillion won), driven by improved export performance due to the weak yen and product price increases. The consolidated net profit forecast for the fiscal year ending March 31, 2024 (based on international accounting standards) is estimated at 4.5 trillion yen (about 38 trillion won), an 84% increase from the previous year.

Additionally, the newspaper pointed out that the rise in domestic demand due to increased foreign tourist visits to Japan, abundant cash assets of listed companies totaling 100 trillion yen, and active wage increase movements have all acted as tailwinds for the stock price rise. Kazuo Ueda, Governor of the Bank of Japan (BOJ), said in parliament today, "The virtuous economic cycle of wages and prices is laying the groundwork for ending the negative interest rate policy."

The Japanese stock market has been steadily rising this year, fueling expectations for new all-time highs. The Nikkei index has risen about 17% this year. In contrast, during the same period, the U.S. Standard & Poor's (S&P) 500 index rose about 5% (as of the 21st), and South Korea's KOSPI has been flat.

Expectations for further stock price increases continue. Japanese experts predict that the Nikkei index will surpass 40,000 this year. Daiwa Securities in Japan raised its 2024 forecast for the Nikkei index by 3,400 yen from the previous estimate to 43,000. Bank of America (BoA) also raised its year-end Nikkei index forecast from 38,500 to 41,000. The forecast for the TOPIX index was also raised from 2,715 to 2,850.