By Matthew Kochen,
Money and Investing Writer
On Thursday, February 19, the Nikkei 225 rose 0.4 percent to reach 18264.79, a height it has not seen since May 2000.
The Nikkei 225, more simply, commonly called the Nikkei, is a stock market index for the Tokyo Stock Exchange (TSE).
This price weighted index, denominated in units of yen (the currency of Japan) is calculated daily by Nihon Keizai Shimbun.
It is the most widely quoted average of Japanese equities.
The Nikkei is most comparable to the Dow Jones Industrial Average, consisting of the top 30 stocks from the New York Stock Exchange and NASDAQ.
The Nikkei is benefitting from the weakening of the yen. The economic policies of Prime Minister Shinzo Abe has led the yen to lose about a third of its value since late in 2012. The weakened yen and mild inflation has led to higher shipments of exports from Japanese firms, up 17 percent from the previous month, the fifth consecutive month it was increased.
Some of the most notable, blue-chip Japanese stocks are thriving at this time. Toyota Motor Corp reached an 8 year high, while Fanuc Corp., an industrial robot maker, hit a record high. Others like software maker Trend Micro Inc. and Sony Corp also saw increases.
A key theme of high performing companies seems to be their willingness to utilize their large cash piles by reinforcing their core businesses and buying out firms for expansion.
“We are finding a lot more growth opportunities (in Japan) – good companies that are executing well in this environment,” said Nick Niziolek, a co-manager of large international growth fund, Calamos Investments LLC.
Investors are buying into this rally, seeing the needed growth and returns to make these equities favorable.
Richard Whittall, a manager of Japan-focused fund Alltus Capital, says, “Japanese companies now are much more aware of global competition, are much more aware of giving shareholders better returns.”
A key driver of this market surge is due to the three mega-banks of Japan, Mitsubishi UFJ Financial Group , Sumitomo Mitsui Financial Group and Mizuho Financial all increasing their share price. The Nikkei is even more exceptional when considering everything Japan has had to endure as a country in recent memory.
In addition to dealing with the ramifications from the 2008 financial crisis; tsunamis, earthquakes, and the Fukushima Daiichi nuclear disaster really hit the country hard.
In spite of Japan’s grow in face of this adversity, experts are still skeptical on the long-term viability of Japan’s equity market.
The ever present economic threats of an aging, shrinking population and the constraint of land availability are threats that cannot be easily addressed.
Japan has seen similar rallies like this before, but only to see an inevitable crash. Japanese stocks both soared and crashed in 1998-2000 due to the U.S. dot-com bubble. Also, from 2005-2007, the market rose with heightened demand from emerging economics like China, only to crash alongside the 2008 financial crisis.
This precedent suggests that Japan is very vulnerable to global financial changes. How long this rally continues for, and the peak it reaches, is something that remains to be seen.
A version of this article appeared in the Tuesday, Feb. 24th print edition.
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