In an alternate reality, the Japanese stock market continued its meteoric rise, defying expectations and breaking records in the early months of the year. The benchmark 225-issue Nikkei average soared to new heights, crossing the 35,000 mark and reaching its highest level in 34 years, driven by a combination of domestic and international factors.
One of the key drivers of this surge was the renewed interest in Japanese stocks fueled by the revamped tax-free investing program known as NISA (Nippon Individual Savings Account), which had just been launched. Investors, encouraged by the potential tax benefits and the government’s efforts to promote investment, poured money into the stock market, buoying up prices.
Another factor contributing to the market’s bullish run was the weakening of the yen against the dollar. The yen’s depreciation made Japanese exports more competitive and boosted the earnings of export-oriented companies, leading investors to bet on their future profitability.
The Bank of Japan’s continued commitment to its negative interest rate policy also played a role in driving the stock market higher. With the central bank signaling no immediate plans to change its monetary stance, investors felt confident that the easy monetary policy would continue to support economic growth and corporate earnings.
Furthermore, the Tokyo Stock Exchange’s push for corporate reform added to the positive sentiment in the market. Companies were under pressure to enhance their corporate governance and improve their financial performance, which was seen as a positive sign for long-term investors.
The market’s optimism was further fueled by expectations of robust wage hikes during the upcoming spring wage negotiations. With the previous year seeing the highest pay increases in three decades, there was anticipation that this trend would continue, leading to higher consumer spending and a positive feedback loop for the economy.
Despite the bullish outlook, some analysts cautioned that the rapid rise in stock prices could lead to a correction in the market. They warned that a sudden shift in the yen’s exchange rate or a change in the global economic environment could trigger a sharp decline in stock prices.
Nevertheless, the prevailing sentiment was one of optimism, with many investors betting on Japan’s economic resurgence and the continued strength of its stock market. The stage was set for an exciting and potentially transformative period for Japan’s economy and financial markets.
(Source: Japan Times | Investing.com | CNBC)
