Japan's Nikkei Bucks Recession Trend, Hits Historic 39K Points, Echoing 1989 Levels

The Nikkei 225, Japan’s benchmark stock index, has hit a record high, surpassing levels last seen in 1989. This milestone comes amid a global economic shift and a resurgence in Japan’s stock market, driven by various factors.

What Happened: On Thursday, the Nikkei 225 index surged by approximately 2% to reach 39,000 points, surpassing the previous intraday record of 38,957.44 points set in December 1989, Reuters reported.

This achievement, which took 34 years to reach, is a record for a major market and is a decade longer than the time Wall Street took to recover from the 1929 crash and the Great Depression.

Despite Japan’s recent recession, global conflicts, and a worldwide inflation shock, the Nikkei has continued to rise. The market’s resilience is attributed to its trade exposure, which has offset declining domestic demand, and a weak currency, which has bolstered exporters’ profits.

“It is hard to overstate the psychological impact to Japanese people of the Nikkei returning, since a generation has never seen that level. The magnetism of the market could draw in unforeseen amounts of domestic liquidity,” said Richard Kaye, a Japan-based portfolio manager at Comgest.

Foreign investors have played a significant role in this rally, injecting 6.3 trillion yen ($42 billion) into the equity market in 2023 and a net 1.16 trillion yen into Japanese equities in January.

See Also: Nvidia Earnings Disappointment Could Trigger Up To 10% Crash In Stock Market, Warns Macro Strategist: ‘I’m Wondering Who’s Turning Around To Buy’

Corporate governance changes in Japan, such as buybacks and the unwinding of cross-holdings, have also attracted foreign investment. This, combined with a robust earnings season and a weak yen, has further fueled the market’s growth.

Analysts are optimistic about Japan’s future, with Bank of America’s Asia fund manager survey for February showing that nearly one-third of participants expect double-digit returns from Japan’s stock market in the next 12 months.

Why It Matters: The Nikkei’s record high comes at a time when Japan has lost its position as the world’s third-largest economy to Germany, signaling a decline in economic competitiveness and productivity, largely attributed to its aging population and declining birth rates.

Furthermore, the prospect of former President Donald Trump returning to the White House is causing unease among Japanese businesses, with nearly half of them viewing a potential Trump presidency as a business risk. These firms are primarily concerned about the protectionist policies that marked Trump’s previous term from 2017 to 2021.

Nikkei’s success could also have broader implications for global investors, as it presents an attractive alternative to other major markets. This shift in investor sentiment is particularly noteworthy given the ongoing global economic challenges, including inflation, geopolitical tensions, and the impact of the COVID-19 pandemic.

Read Next: Edward Snowden Says If He Ever Claims To Be Bitcoin Creator Satoshi Nakamoto It’s Either Him Trolling Or A ‘Duress Code’

Photo via Shutterstock