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The blue-chip index soared by up to 1 per cent to reach 40,301.30, marking a fresh intraday record.
Japan’s Nikkei 225 Stock Average surged beyond the psychologically significant threshold of 40,000 points for the first time on Monday.
According to a Bloomberg report, this signals potential for further upward momentum in its recent ascent.
The blue-chip index soared by up to 1 per cent to reach 40,301.30, marking a fresh intraday record.
Led by gains in the technology sector, with Advantest Corp notably the top performer, the Nikkei’s rally indicates investor confidence and favourable market conditions.
“The Nikkei 225’s 40,000 is certainly a key psychological level, which could offer some resistance for the index and bring volatility,” Bloomberg quoted Charu Chanana, a strategist at Saxo Capital Markets, as saying.
Chanana noted that although there are potential short-term fluctuations, prevailing structural factors and yen weakness are likely to sustain the bullish sentiment, mitigating concerns of overvaluation in Japanese stocks.
The recent surge in the Nikkei mirrors an ongoing trend of investor optimism buoyed by improving shareholder returns, currency dynamics, and robust corporate earnings.
Last month, the Nikkei reclaimed its peak from 1989, with international investors flocking to Japan’s leading companies.
Warren Buffett’s endorsement of Japanese trading houses further instilled confidence in the market, while apprehensions over a slowdown in China prompted capital reallocation towards Japanese equities.
Foreign investors continue to exhibit confidence in the prospects of Japanese stocks.
Major asset managers such as BlackRock Inc and Amundi Asset Management foresee sustained earnings growth and favourable shifts in corporate governance as catalysts for continued market strength.
However, despite bullish sentiment, concerns linger regarding potential overheating in the stock market.
“While 40,000 yen for the Nikkei 225 is a passing point, the pace is too fast and the level is reached a little too early for the economy and companies’ actual performance to keep up with,” cautioned Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank.
According to Bloomberg, Sera said that a cautious approach was imperative, further noting that economic fundamental must align with market valuations to ensure sustained growth.
Encouragingly, efforts to enhance equity valuations are underway, with the Tokyo Stock Exchange advocating for greater transparency through the publication of companies’ plans to boost shareholder value.
Initiatives such as share buybacks, dividend hikes, and management buyouts are gaining traction, underscoring a proactive approach to fortify market resilience.
Additionally, the prevalence of net cash positions among Nikkei companies, indicative of robust financial health, further bolsters investor confidence.
“This is not a groundless frenzy,” Bloomberg quoted Masahiro Yamaguchi, a senior market analyst at SMBC Trust & Banking Ltd, citing the strong economic and corporate landscape in both Japan and the United States.
(With inputs from Bloomberg)
