Japan’s major stock indexes closed at record highs on Thursday, led by gains in shares of automakers, banks and technology companies, while the market also showed a robust outlook for the second half of 2024.
The broader Topix index hit a record high, surpassing its previous peak set 34 years ago. It rose to 2,900.91 in early trading hours and ended the day up 0.92% at 2,898.47, surpassing its record set in December 1989.
“The Topix needed strength from automakers and banks to rise as they make up a large portion of the index’s weighting,” said Yugo Tsuboi, chief equity strategist at Daiwa Securities. “Bank stocks rose on expectations that interest rates would rise and automakers were supported by a weak yen.”
Toyota Motor rose 1.98%, giving the biggest boost to the Topix. Honda Motor rose 3%.
Mitsubishi UFJ Financial Group rose 1.47%, while Mizuho Financial Group gained 3.45%.
The Nikkei closed 0.82% higher on Thursday at 40,913.65, surpassing the record high close set on March 22. Technology stocks led the gains, with chip testing equipment maker Advantest rising 2.14%. Technology investor SoftBank Group gained 4.53%.
According to Daiwa’s Tsuboi, the indices will maintain their momentum towards the end of the year as investors expect local companies to raise their outlook.
Investors sold Japanese stocks earlier this year because of the conservative outlook for Japanese companies, but with signs of economic improvement, they expect the outlook for these companies to improve later in the year, Tsuboi said. He maintained his target for the Nikkei at 43,000 by the end of this year.
Of the more than 1,600 stocks traded on the Tokyo Stock Exchange’s (TSE) main market, 59% gained, 35% fell and 4% remained flat.
Both indexes rose more than 25 percent last year as global funds rushed into the Japanese market, attracted by ultra-low borrowing costs, rising profits and the Tokyo Stock Exchange’s drive to improve corporate governance.
There is little evidence that the Bank of Japan’s shift to tighter monetary policy is dampening sentiment, with investors embracing the idea that the country’s fortunes have changed for the better as inflation returns. Banks have risen on speculation that higher yields will help improve lending margins, while insurers have risen on expectations that they will boost profitability through their bond investments.
But the BOJ’s decision to wait until its July meeting to present plans for reducing bond purchases sent the yen lower, disappointing investors who wanted more details. The yen is also hitting new multi-decade lows, dampening the momentum for export stocks as fund managers grow more cautious about currency intervention. Concerns are also mounting that the weak yen has become a burden on Japanese companies and the Japanese economy.
Still, Bank of America’s June survey of fund managers showed Japanese stocks remain a favorite market in Asia, with a third of respondents saying the most important theme is improvements in corporate governance. Analysts expect the TSE’s latest plan to revamp the Topix index will put further pressure on companies to improve governance.
“Japanese companies are still eager to show that they are responding to TSE pressure to reform corporate governance,” strategists including Bruce Kirk wrote in a note.
