Japan’s Nikkei breaches 40,000 level as investor sentiment flies high

Japan's Nikkei breaches 40,000 level as investor sentiment flies high

Japan’s primary stock index, the Nikkei, made history on Monday by surpassing the 40,000-point mark for the first time, closing at a record high. This milestone reflects ongoing corporate governance reforms and solid valuations, which continue to attract long-term interest from global investors.

Buoyed by a surge in technology shares, mirroring the performance of their U.S. counterparts, the Nikkei share average concluded the day with a 0.5% increase, settling at 40,109.23 points. This achievement followed five consecutive weeks of gains, during which the index broke through the previous intraday peak set on Friday and climbed to a high of 40,314.64 points before tapering off in the afternoon.

While short-term fluctuations may occur as the market heats up, Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed confidence in the continued upward trajectory of the market. Overseas investors, adopting a medium- to long-term perspective, have been at the forefront of this bullish trend.

Analysts foresee the potential for further gains in Japanese equities this year, driven by sustained changes in corporate behavior. A Reuters poll conducted on Feb. 22 revealed predictions reaching as high as 43,000 points, with a median year-end forecast for 2024 at 39,000 points.

Despite the significant contribution of foreign investment to the Nikkei’s ascent, there are indications of a gradual shift in sentiment among domestic retail investors, who have historically shown limited interest in Japanese stocks. Recent data suggests a surge in purchases of Japan-focused exchange-traded funds eligible for local tax breaks, indicating a growing inclination among individual investors to allocate more funds to the domestic market over time.

Monday’s rally in Japanese technology shares was fueled by the ongoing surge in artificial intelligence-related stocks in the U.S., with the S&P 500 and Nasdaq reaching record highs on Friday. Advantest, a chip-testing equipment manufacturer with Nvidia among its clients, saw a 3.7% increase in its stock price, while Tokyo Electron, a major chip-making equipment giant, gained 2.4%. These two companies alone contributed 160 index points to the Nikkei’s overall gain of 198 points.

Renesas Electronics, a Japan-based semiconductor manufacturer, emerged as the top performer of the day with a 4.9% increase in its stock price. Additionally, JSR Corp, a leading producer of photoresists utilized in chip manufacturing, surged by 4.8% following reports of a tender offer by state-backed fund Japan Investment Corp (JIC) later in the month.

Despite the Nikkei’s impressive performance, the broader Topix index ended the day with a marginal decline of 0.1%, closing at 2,706.28 points.