Japan's Nikkei 225 Index surpasses its all-time high reached in 1989

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Pedestrians watch the value of stocks rise in Japan's Nikkei 225 index in Tokyo on February 22, 2024.

Hong Kong

The Japanese stock market finally set a new record high for the first time since 1989 when the asset price bubble burst, ushering in decades of economic stagnation.

Strong gains in Japanese semiconductor stocks on the back of Nvidia's blockbuster earnings report late Wednesday helped push the Nikkei index 2.2% higher to close at 39,098.68 points on Thursday, surpassing its previous record high on Dec. 29, 1989.

But the index has been on a tear for more than a year, driven by a combination of strong corporate earnings, a weak yen that is helping exporters, and an influx of foreign investors looking for an alternative to depressed China markets.

The Nikkei rose 28% in 2023, making it the best performer in Asia. So far this year, it has jumped more than 17%. And put it in front of other major global indicators.

“This is a moment to reflect on investors recognizing that this is real [lasting] “A bull market has been underway in Japan for some time and is likely to deliver further gains going forward,” Morgan Stanley strategists wrote in a research note on Thursday.

One Specific reason They said optimism stems from strong corporate earnings.

The rise was primarily driven by strong earnings, a weak yen and corporate governance reforms, said Daniel Hurley, emerging markets and Japanese equities portfolio specialist at T. Rowe Price.

The yen has fallen more than 6% against the US dollar so far this year, after losing about 8% against the dollar in 2023. The weaker currency benefits Japanese exporters and makes shares of Japanese companies cheaper for foreign investors.

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Hurley added that Japanese technology companies also have a bright outlook, with demand for artificial intelligence on the rise.

Shares of Japanese semiconductor companies rose on Thursday. After Nvidia (NVDA) It said its quarterly profits rose significantly 769% over last year. This sent Nvidia shares soaring in aftermarket trading.

Semiconductor manufacturer Screen Holdings rose 10.2%. It was a top performer among Nikkei voters. Advantest, which supplies testing equipment to the chip industry, rose 7.5%. Tokyo Electron, which sells electronics and semiconductor production equipment, jumped 6 percent.

For the country to maintain this rise, Japan will have to dig deeper “Corporate governance reforms, which will further enhance shareholder returns,” Hurley said.

The Japanese government has implemented corporate governance reforms since 2013, with the aim of making companies more accountable to their shareholders and promoting sustainable growth.

Foreign inflows also supported the rise, Hurley added.

According to recent estimates from Goldman Sachs, Japanese equity funds have seen a cumulative inflow of $5.1 billion so far in 2024. Last year, they recorded an inflow of $7.4 billion.

Last June, billionaire investor Warren Buffett's Berkshire Hathaway added to its property In the five largest trading houses in Japan.

This story has been updated with additional information and context.

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