On Thursday, January 4, 2024, employees work at the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group, Inc. (JPX), in Tokyo.
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Although this year has gotten off to a turbulent start, Japan’s Nikkei Stock Average has exceeded the 35,000 yen mark for the first time since February 1990 and continues to set new highs in 33 years.
During the rise in the Japanese stock market that began on January 5th, the TOPIX, which covers a wide range of sectors, also hit a 33-year high.
How long will this service continue? Is it possible for the Nikkei Stock Average to surpass its all-time high of 38,195 yen, set in December 1989?
IG Asia market strategist Yeap Jun Long told CNBC in an optimistic tone: “Japan’s stock market seems to have everyone in place.”
He said lackluster wage statistics and weak household spending have allowed the Bank of Japan to maintain ultra-easy policy for an extended period of time, boosting domestic markets.
This allows the stock to “continue to benefit from this supportive policy environment,” Yep said, adding that some long-term tailwinds, including corporate governance measures by the Tokyo Stock Exchange, could give the stock further upside. He added that there is room.
Among the measures taken by the TSX is to instruct companies to “comply or explain” if they are trading below the threshold. Price/book value ratio One – indicates that the company may not be using its capital efficiently. CNBC
The exchange warned that such companies could be delisted as early as 2026.
In a note last week, Bank of America compared Japan’s rally to the rise in the Nikkei Stock Average from April to June 2023, calling it “déjà vu.”
“We see many similarities with last year’s bull market,” BofA analysts said, adding that one of the factors that started last year’s bull market was the largest hike in Chundong wages in 30 years. Ta.
It is becoming more likely that further wage increases will be realized through spring labor negotiations in 2024, and major companies have announced large wage increases one after another in recent weeks.
“Cost-push inflation is weakening and will likely have a significant impact on markets if real wages begin to rise,” BofA said.
Yep also attributed the market rally to investor expectations that Japan will break out of a deflationary cycle and benefit from supply chain diversification amid worsening U.S.-China relations.
The weaker yen also contributed to the inflow of funds into Japan from overseas investor funds. Net inflows into Japanese stock funds rose to 320 billion yen in December from 70 billion yen the previous month, according to a survey by Morningstar Fund Research. Net outflows from passive funds also fell from 180 billion yen to almost zero.
Referring to the Bank of Japan’s negative interest rate policy, BofA analysts said, “Although the yen has been trending slightly higher recently, the yen is likely to weaken further as the market views that the Bank of Japan’s withdrawal from the NIRP will be delayed.” “There is,” he said.
On the technical side, BofA believes Japanese market valuations are “not yet stretched,” but they are not as cheap as they were during the April-June rally.
As a result, the stock may not have much room for upside, although analysts haven’t ruled out further upside. The median price-to-earnings ratio is now 14x, compared to his peak of 14.5x.
Yep said the near-term overbought technical situation “could require some short-term breathing room for the index, but the prevailing uptrend will likely persist, with the Nikkei 225 trending back to its 1990 level in the coming months.” “We may see a retest of the highs,” he warned.
On Monday, the Nikkei Stock Average rose 0.62% and the TOPIX rose 0.84%, even as other Asian markets slumped.