Nikkei Hits Highest Since Early 1990s In Sign Deflation Ending

(Bloomberg) -- Japan’s Nikkei 225 Stock Average climbed to its highest since the nation’s bubble economy era more than three decades ago, reflecting investor optimism that growth is returning after the country’s long battle with deflation.

The blue-chip gauge rose 1.2% to close at 33,763.18 in Tokyo, a level unseen since March 1990, lifted by a rebound in technology shares and a drop in Treasury yields. The benchmark Topix index, which some funds prefer to follow because it’s more comprehensive, gained 0.8%.

Both the Nikkei 225 and Topix completed an annual advance of more than 25% last year, their best performance in a decade. The measures were among the world’s biggest gainers in 2023 as authorities pushed companies to improve shareholder value, while decades-long deflation faded and was replaced by mild price gains.

A yen rate that remains weak historically despite a recent rebound has supported exporters, and optimism after Warren Buffett parked more of his cash in Japan’s biggest trading companies have also boosted equities in the world’s third-largest economy.

“Japanese stocks have been cheap for a long time,” and signs of corporate governance reforms and Buffett’s investments mean the Nikkei’s return to a three-decade high wasn’t that surprising, said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. 

“It’s important to watch if the Nikkei can reach a record high now,” she said. “The 40,000 yen level still seems quite far away.”

Inflation in Japan hasn’t reached heated levels seen in many economies in Asia and there are signs that it’s slowing. But that’s still a sea change from years past, when persistent price falls weighed on corporate earnings. It also prompted the Bank of Japan to fight deflation by lowering interest rates to below zero and buying assets from the market to jump-start demand.

Market rates suggest that traders expect the BOJ to end its negative interest-rate policy later this year, though speculation of a move this month has largely tapered off. While a policy tightening by the central bank may initially drag down shares as borrowing costs rise, banks may benefit as they improve lending margins.

DeNA Co. helped fuel the Nikkei 225’s advance after announcing its equity-method affiliate Go Inc., a mobility company, has started preparations to list shares. Nintendo Co. was another top gainer, as Bernstein & Co. upgraded the Japanese gamemaker to outperform from market perform, citing constructive industry feedback on a new console expected later this year.

(Updates with quote from strategist in sixth paragraph.)

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.