In the three months up to December of last year, Japanese companies can be described as having achieved record quarterly profits, which may vigorously promote Japan's blue chip benchmark index —$Nikkei 225 (.N225.JP)$It broke through the highest point in history set in 1989. The Nikkei 225 Index once reached 38,742 points during the intraday session on Tuesday. The index's all-time high was 38,957 points in 1989, when Japan's bubble burst in Heisei 1.

According to data compiled by the agency, the overall net profit of the companies included in the Tokyo Stock Exchange 500 Index increased 46% year over year, reaching a record high of about 13.9 trillion yen (about 93 billion US dollars). Excluding Softbank Group Corp. (Softbank Group Corp.), which experienced a sharp rise in profits due to the low base effect Overall net profit still increased 25%.

The SoftBank Group, led by Sun Zhengyi, has invested heavily in most technology companies around the world, and their net profit often fluctuates greatly. According to the latest financial data, the SoftBank Group achieved net profit of 950 billion yen in the third quarter of fiscal year 2023, reversing a loss of 783 billion yen in the same period last year. This is the first time since September 2022 that it has achieved profit. Vision Fund's profit for the same period was 422.74 billion yen, and a loss of 660.1 billion yen for the same period last year.

Strong performance growth indicates that the strong gains that push Japan's major stock indexes to record highs will continue for a long time. From global asset management giant BlackRock Inc. (BlackRock Inc.) to Robeco Institutional Asset Management to Berkshire Hathaway under “stock god” Warren Buffett (Warren Buffett), large overseas investment institutions have basically expressed optimism about the Japanese stock market's bullish trend.

According to the forecast of Yue Bamba, head of active investment in the Japanese stock market at BlackRock (BlackRock), the long-awaited potential scenario where the Bank of Japan gradually withdraws from the ultra-loose monetary policy, which global investors have been waiting for, may have an unusual impact. In particular, it may make the Japanese stock market one of the beneficiaries of the Bank of Japan's interest rate hike.

The strategy director pointed out that Japan's environment, which still favors easing, is in stark contrast to the significantly restrictive monetary environment in the European and American markets. In addition, the allocation weight of undervalued Japanese stocks in the global portfolio is significantly lower than that of the European and American stock markets, which means that a larger scale of global capital will flow into the Japanese stock market in the future. The potential increase in the yen exchange rate of 10-15% may even be “positive news” for the Japanese stock market.

According to information, unexpectedly strong US economic data and the depreciation of the yen have boosted many Japanese car exporters, including Toyota Motor Corporation. Some Japanese domestic companies are benefiting from Japan's inflationary trend, which allows them to push up prices, while corporate governance improvements led by the Tokyo Stock Exchange also make global investors more optimistic.

“The mentality of the company has changed.” Takashi Hiroki, chief strategist from Monex Securities, said, “We will see more and wider price increases as companies are able to pass on rising costs, which supports their stable profit scale and higher share prices.”

Global automobile manufacturing giant Toyota Motor is one of the representative companies for improving performance expectations. Due to the strong recovery of hybrid vehicles and strong demand in the US, full-year profits will be more optimistic than previously anticipated due to Toyota executives. Furthermore, the extremely resilient US economy has also boosted the performance of Japanese companies. The US is one of the most important demand countries for Japanese exports, and the strong US market has helped boost the performance of many Japanese listed companies.

As of December of last year, the Japanese economy had experienced two consecutive quarters of economic contraction, which is in line with a “technical recession” in the general sense of the word. Despite the economic downturn, Japanese companies are still able to raise prices, so more and more companies are able to raise profit margins, mainly because Japan's continued inflation rate enables companies to pass on rising costs to consumers, and the trend of rising wages in Japan supports consumers to accept higher prices.

There are still doubts about the recovery trend of technology companies, and the performance of travel and food companies is strong

Despite an increase in overall corporate profits, the performance of some industries is still weak. Some technology industry companies in Japan, especially those focused on semiconductor equipment and raw materials, and electronic components drastically lowered their annual performance expectations, but their stock price performance was poor, indicating that the recovery of the chip industry that the world had been waiting for a long time was still incomplete. These companies include Alps Alpine Co, Ibiden Co. and Taiyo Yuden Co,

Meanwhile, companies that rely on Asian demand to achieve profits, such as factory automation equipment manufacturer Omron Corp. (Omron Corp.), have also been impacted to varying degrees, mainly due to weak demand in the Asian region since 2023.

On the other hand, the best performers are concentrated in travel service companies and food manufacturers in Japan, as they have benefited from rising prices and a surge in the number of overseas visitors to Japan.

Oriental Land Co. (Oriental Land Co.), the operator of Tokyo Disneyland (Tokyo Disneyland), has an operating profit margin of 35.5%, at least the highest level since 2005. Railway operators such as East Japan Railway Co., Ltd. and Central Japan Railway Co., Ltd. raised their performance expectations sharply. Calbee (Calbee), a well-known snack manufacturer in Japan, also greatly exceeded market expectations after starting a price increase model.

The strategy team led by J.P. Morgan strategist Rie Nishihara said in a report that overall, the average operating profit margin of Japanese companies in the last fiscal quarter was as high as 10%, while the 8.4% recorded in the same period last year was already the highest level in many years. According to statistics compiled by the agency, Toyota's operating profit margin reached 14% in the last quarter, the highest level since at least 2001.

Not only is it expected to reach an all-time high, but it is also likely to rush to 40,000 points

As the Nikkei 225 Index nears its historical peak in 1989, the strong overall profit data of Japanese companies can be said to have greatly strengthened the optimism of global investors. In recent days, some analysts who are optimistic about the future market of the Japanese stock market raised the target point of this benchmark stock index.

Arnout Van Rijn, fund manager who manages the Robeco Sustainable Multi-Asset Solutions investment fund, wrote in a report last week: “Japanese companies are facing pressure from domestic and foreign investors, government agencies, and financial market regulators to return more capital to shareholders.” He wrote that the team is already continuing to lengthen the Japanese stock market, and the investment derivatives indicators they use predict that the Japanese stock market will continue its recent high.

Wei Li, a multi-asset quantitative solutions portfolio manager from BNP Paribas Asset Management (BNP Paribas Asset Management), is also optimistic about the future market situation of the Japanese stock market, rather than the yen exchange rate and Japanese treasury bonds, because he believes that the Bank of Japan's interest rate hike will be gradual and the monetary environment will still be biased towards easing. Wei Li said in an interview last Thursday that this (Bank of Japan rate hike) will not boost the currency any time soon, nor will it make sovereign debt attractive.

Wei Li emphasized that corporate governance reform measures led by the Tokyo Stock Exchange can be described as an important reason why foreign investors are optimistic about the Japanese stock market. “Increasing Japanese stock holdings is the market's current consensus, but the current share of global investors in the Japanese stock market is still low.” Li display. “The scale of capital inflows to the Japanese stock market is still in its early stages, and the scale of foreign capital inflows is still likely to support the Japanese stock market to further outperform most global stock markets.”

Toshio Morita (Toshio Morita), chairman of the Japan Securities Dealers Association, recently said that the Nikkei 225 index may rise to 42,000 to 43,000 points this year. Furthermore, according to Japanese media reports, the country's large financial institutions have been increasing the number of employees, focusing on market traders experienced in an environment where interest rates are rising.

According to the above statistics from the Tokyo Stock Exchange, the net purchase of local Japanese stocks by foreign investors reached about 817.43 billion yen (about 5.44 billion US dollars) in the week ending February 9, which is the largest net weekly purchase level in the Japanese stock market since January 12.

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