Following an extended holiday weekend, Japan’s Nikkei share average concluded at a new 34-year peak on Tuesday, propelled by strong corporate earnings and gains in tech-related stocks. At one juncture, the Nikkei surged by up to 400 points, reaching almost 37,000, marking its highest level since February 1990. Notably, it had achieved a fresh 33-year high just the day before on Monday.
A weaker yen is a crucial driver of the rally, as it makes Japanese exports more competitive and boosts the value of overseas revenue earned by companies. But investors also have a growing expectation that the Bank of Japan will continue to support the market with its policy of ultra-loose money and asset purchases, despite concerns about sluggish inflation and risks from global trade tensions.
Investors also remained upbeat about the outlook for corporate profit growth, with wages rising and companies taking advantage of cheap borrowing costs to buy back their shares or increase dividend payouts. The stock market’s surge has been boosted by signs of an emerging recovery in the economy from deflation, with workers seeing their most significant wage increases in decades last year.
In addition, the weaker yen has made Japanese stocks cheaper by international standards and attracted foreign buyers. This was especially the case last year when billionaire investor Warren Buffett increased his stakes in Japan’s top trading firms.
Tech-related shares led to Nikkei’s advance, with chipmakers and other manufacturers benefiting from a strong dollar. Semiconductor company ARM Holdings jumped 7.5% as demand for its chips used in artificial intelligence boosted prospects.
However, some analysts warned of a possible pullback as technical indicators signal overheating in the market. A closely watched indicator called the relative strength index (RSI) was close to 76, well above the 70 mark that indicates overbought conditions.
Investors were also eyeing Tuesday’s US consumer price index data, due out later, for clues to the pace at which the Federal Reserve may be preparing to raise interest rates this year. “An ostensibly hawkish shift by the Fed could hurt the Nikkei by increasing the appeal of the yen,” said OANDA strategist Kelvin Wong.
Other winners included shippers, financial firms, and banks. The TSE’s shipping index rose 5.66% as geopolitical tensions pushed up freight rates. The financial index gained 2.1% as shares of banks climbed on expectations of higher profits. However, Japan’s banks have been struggling to lift their earnings following a fall in sales and a slump in the number of retail customers.
