On Thursday, July 4th, the main stock indices in Japan closed at a historic high, with stocks in auto manufacturers, banks, and technology companies leading the way, and the market is expected to have a strong outlook for the second half of the year.
At the close, the Nikkei rose 0.82% to 40,913.65 points, surpassing the historical high closing point of 40,888.43 points set on March 22nd, with the historical high during the day reaching 41,087.75 points.
The Nikkei 225 index has risen 22.4% since the beginning of this year. The index rose sharply during the Japanese economic bubble period in the late 1980s when asset prices soared. However, after the financial bubble burst in early 1990, the index plummeted, with the previous historical high point being 38,915.87 points. #Japanese market#
Why is the TOPIX index rising sharply?
A wider range of the TOPIX index hit a new historical high, surpassing the peak of 34 years ago, and rose to 2,900.91 points during the trading period earlier and ultimately rose 0.92% to close at 2,898.47 points, surpassing the highest closing point in history set in December 1989. The momentum of this rally is not limited to a few stocks, but is extending to a wider market, showing a solid foundation of this market.
Among the more than 2,000 companies covered by this index, almost all 33 industry sub-indices rose, with automakers providing the biggest boost. Insurance companies and banks have performed best since mid-April, as the market expects the Bank of Japan (BOJ) to raise interest rates, thereby improving their profitability.
On the Tokyo Stock Exchange, 2,047 stocks rose, 1,549 stocks fell, and 282 stocks remained unchanged at the close.
"Many of our previous gains were mainly from the Nikkei index which is dominated by exporters and technology stocks, so it is not surprising to see the TOPIX index catch up here," said Andrew Jackson, managing director of Japanese stock market strategy at Ortus Advisors.
The Nikkei Volatility Index, which measures the implied volatility of Nikkei 225 options, rose 2.62% to 16.47.
The weakening of the yen is also a major driving force.
This rally follows overnight gains on Wall Street, with the S&P 500 index and the technology-intensive Nasdaq index both hitting new records.
Investors are rushing into the Japanese market, in part because the yen is at a low level, with the yen to dollar exchange rate hitting a 34-year low. A weak yen usually boosts exporters' profits when sent back to Japan.
Technology stocks led the way, with chip testing equipment maker Advantest rising 2.14%. Technology investor SoftBank Group rose 4.53%.
"The TOPIX index needs the power of automakers and banks to rise since they have a large weight in the index," said Yugo Tsuboi, chief stock strategist at Daiwa Securities. "Bank stocks are rising due to expectations of rising interest rates, and automakers are supported by the weak yen.
The Bank of Japan's move toward tighter monetary policy has not dampened market sentiment, as investors believe that Japan's fate has already changed with the return of inflation. Bank stocks are rising on expectations of higher yields which will help improve loan profitability, while insurance companies are benefiting from expectations of increasing profitability through bond investments.
Toyota Motor rose 1.98%, making the largest contribution to the TOPIX. Honda Motor rose 3%. Mitsubishi UFJ Financial Group rose 1.47% and Mizuho Financial Group rose 3.45%.
Investment banks are bullish about the future.
Tsuboi of Daiwa Securities said these stock indices will continue to rise by the end of the year as investors expect Japanese domestic companies to raise performance expectations.
Last year, both stock indices rose more than 25% as global funds poured into the market, attracted by ultra-low lending costs, soaring profits, and Tokyo Stock Exchange's efforts to improve corporate governance.
"Investors sold Japanese stocks earlier this year because Japanese companies made conservative outlook predictions. However, with signs of economic improvement, they expect to release better outlook predictions later this year," said Tsuboi, adding that he maintains his target of 43,000 points for the Nikkei by the end of this year.
Bank of America's June fund manager survey shows that Japanese stocks are still a hot investment in Asia, with one-third of respondents saying that the most important theme is the improvement of corporate governance.
"Japanese companies are very eager to show that they are responding to the Tokyo Stock Exchange's corporate governance reform pressure," wrote Bruce Kirk, a strategist for Goldman Sachs Group, in a report.