Nikkei crossed its previous high for the first time on 22nd February,2024

Recently the Japanese stock market index Nikkei-225 hit a new high after a 34 year wait !

Why this sudden boom in the market ? Is History repeating itself again! What are the Factors driving the market?

You may get a distinct idea about Nikkei Index and its past history by going through this Blog.

  • Japanese stocks Nikkei reclaimed a historic peak reached more than three decades ago as investors pour money into a country that’s finally escaped deflation and is on a path to sustainable growth.
  • Nikkei has hit 40,000 mark for the first time in recent times.

Why this happened?

Nikkei found support from US consumption data and it can be expected that Federal Reserve will start reducing interest rates as early as June 2024.

  1. Yen weakness continues, hence it supports the rally which is a positive sentiment.
  2. Warren Buffett’s endorsement of Japanese trading houses last year boosted confidence.
  3. Foreign investors remain bullish on Japanese stocks.
  4. Other factors which aided this rally : improving shareholder returns, the weaker yen and booming corporate profits.
The Nikke

The Nikkei 225’s stellar rally over the past year caps a recovery that’s made the nation’s equities a top pick among global funds after being overlooked in favour of faster-growing markets like China.

Returns of Nikkei-225 over years :

Returns of Nikkei-225 over years

1989 Japan’s Stock Market

1989 Japan’s Stock Market

Japan’s stock market boom and subsequent bust in 1989 is a cautionary tale. It serves as a reminder of the dangers of speculative bubbles and the importance of prudent financial regulation. During the 1980s, Japan experienced an economic boom, fueled by a combination of factors such as ,

  • Rapid industrialisation,
  • Technological Innovation, and
  • A Booming Real Estate Market.
  • This economic prosperity led to a surge in stock prices, with the Nikkei 225 index reaching dizzying heights.
Fever Pitch

Investors, both domestic and foreign, flocked to the Japanese stock market, drawn by the promise of quick and substantial returns. The euphoria surrounding the market reached a fever pitch, with many investors believing that the boom would continue indefinitely.

However, as history has shown time and time again, such exuberance is often unsustainable. Let us know why?

In late 1989, the bubble finally burst, sending shockwaves through the Japanese economy. Stock prices plummeted, wiping out trillions of dollars in wealth and leading to a prolonged period of economic stagnation known as the “Lost Decade.”

Why the bubble had burst in 1989?

Because of the following reasons,

  • Weakness of tax lending practices,
  • Overvalued assets, and
  • A lack of regulatory oversight.

After-effects

The aftermath of the stock market crash in 1989 had far-reaching consequences for Japan. This lead to a prolonged period accompanied by 2 things:

  • Economic hardship and
  • Deflation

What measures were taken?

The government was forced to implement a series of measures to stabilise the economy, including,

  • Monetary easing and
  • Fiscal stimulus.

The Bank of Japan also embarked on a program of quantitative easing to inject liquidity into the financial system.

Why it serves as a lesson for the global markets?

The lessons learned from Japan’s stock market boom and bust in 1989 are still relevant today. It serves as a stark reminder of importance of sound financial regulation.

  • By studying the events of 1989, policymakers and investors can gain valuable insights into how to prevent similar crises in the future.

2024 Scenario of Nikkei- why it is different?

2024 Scenario of Nikkei- why it is different?

What are reasons for Nikkei hitting new highs?

In the year 2024, the Nikkei index reached new highs, sparking interest and speculation among investors and analysts alike. This surge in the Nikkei’s performance can be attributed to a combination of factors that contributed to the market’s bullish trend.

What are reasons for Nikkei hitting new highs?

Factor 1: Strong economic growth

One of the key drivers behind the Nikkei’s record-breaking performance in 2024 was the robust economic growth experienced in Japan which includes strong consumer spending, increased exports, and government stimulus measures.

This positive economic environment created a favourable backdrop for companies listed on the Nikkei, leading to 2 things:

  • Improved corporate earnings and
  • Investor confidence.

Factor 2: Foreign Investors’ interest

Furthermore, foreign institutional investors played a significant role in driving the Nikkei to new highs in 2024 as they were attracted to the Japanese market because of the following reasons:

  • Its potentiality for growth,
  • Attractive valuations, and
  • Diversification benefits.

Factor 3- Government support

Additionally, government policies and initiatives boosted the Nikkei index:

  • Tax incentives for investors,
  • Infrastructure spending, and
  • Regulatory reforms

Factor 4 - positive global market trends

Global market trends and geopolitical developments also played a role in shaping the Nikkei’s performance in 2024.

Other factors influencing the Nikkei’s momentum:

  • Positive trends in international markets,
  • Trade agreements, and
  • Geopolitical stability

Conclusion

In conclusion, the Nikkei’s ascent to new highs in 2024 was a result of a confluence of these factors:

  1. Strong economic growth,
  2. Foreign investor interest,
  3. Government support, and
  4. Global market trends.

While past performance is not indicative of future results, the Nikkei’s success in 2024 serves as a testament to the resilience and potential of the Japanese stock market.

Investors and analysts could continue to monitor the Nikkei closely, seeking opportunities and insights. It’s important to consider a variety of factors when analyzing stock market performance.

Arunava Chatterjee
Founder of INVESMATE. I am a Certified Research Analyst, Value & Growth Investor, Trainer and Tech Entrepreneur. With 15 years of capital market experience, I have trained 10000+ students on INVESMATE. I have created several YouTube videos, mostly related to in-depth fundamental analysis.



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