Japan’s stock exchange reached its highest level ever, surpassing that of the late 1980s bubble economy and marking a symbolical recovery after 34 years of stagnation.
The Nikkei Average of the top 225 Japanese companies closed on 39,098, an increase of 2.2%, surpassing the previous high of 38,915 reached on the last day of trading in 1989. The year was 1989, the Transformer toy line was in its infancy and Milli Vanilli had topped charts both on the east and west coasts.
This record represents the latest evidence that Japanese stocks have been on a growth streak, despite the fact that the economic conditions are different from the 1980s.
This was a result of the impressive earnings reported by US semiconductor group Nvidia Corp. It bodes well for Japanese technology companies. Tokyo Electron shares rose 6 percent, Advantest’s grew 7.5 percent and SoftBank’s shares increased 5.1 percent.
Nikkei is on track to reach 40,000 points this year after a 17.5% increase in 2018. This follows a 28.5% rise last year.
This is a reflection of both a growing confidence in Japanese firms and a change in investor sentiment towards China. China’s appeal to investors has diminished due to increased geopolitical tensions.
A survey by SMBC Nikko Securities of 1,400 Japanese firms found that the big companies were anticipating a combined net profit growth of 13 percent this fiscal year. Corporate reforms improved efficiency and transparency in companies.
Prices and salaries have begun to increase again after “lost decade” when stubborn deflation held wages down and discouraged spending. As economic turmoil and arrests and investigations of foreign businesspeople make China less appealing, foreign investors are returning to Japan.
A falling dollar also gave equities an advantage: The yen fell by around 6 percent against the US dollar in this year. This is good for Japanese exporters, and it makes investing in Japanese companies attractive. The central bank of Japan has kept interest rates at negative levels, even though the rest of world increased borrowing costs to fight inflation.
Last month, foreign buyers bought Y=2,07 trillion (£10,9 billion) of Japanese stocks. This is the seventh largest monthly accumulation since data became available 42 year ago.
Warren Buffett, chief executive officer of Berkshire Hathaway and the most prominent foreign investor to return to Japan, began purchasing five major trading houses by 2020.
This week’s records are a reminder that Japan’s recovery is still arduous and the country is far from its bubble-era euphoria. Stock and land prices rose to unsustainable heights, driven by a surge in property prices and a liberal lending environment.
At its peak, Japanese stocks accounted for 45% of the global market, while US shares made up 33%. Today, Japanese shares account for 6 percent of the global stock market. Far from experiencing a surge in growth, Japan has entered a technical slump, after registering two consecutive quarters in decline during the second half last year. It was overtaken last week by Germany to become the third-largest economy in the world, after the US and China.
While traders at some Tokyo brokerages applauded and cheered the Nikkei, they also acknowledged that much has changed in the 35 years since 1989: six of the top ten companies in the world, including the Industrial Bank of Japan with a $100 billion market cap, were Japanese. No longer are any.