Nikkei and Topix at 34-year high: rise on yen depreciation and corporate governance

Nikkei and Topix at 34-year high: rise on yen depreciation and corporate governance

According to a report by www.boersen-zeitung.de,

The Japanese stock market has recorded impressive growth at the start of the new year. The Nikkei 225 and the broad Topix hit their highest levels since February 1990 this week, driven by a depreciation of the yen and a focus on technology stocks such as Nintendo, which rose almost 5% in just six trading days. Many analysts expect nominal growth rates and point out that deflation appears to have been driven away. Japanese stocks performed particularly well in 2023 due to improved corporate governance and the increasing attractiveness of Japan as an investment alternative to China. Foreign investors played an important role by investing large sums in the market, many of which borrowed in yen to avoid currency risk. The rally was also driven by earnings growth and high corporate payouts.

Based on current developments, it is expected that the yen will strengthen, which in turn could have a positive impact on investors. However, an appreciation of the yen could reduce balance sheet profits through the repatriation of foreign earnings, particularly among auto and electronics manufacturers. Still, many analysts predict rising profits due to companies' ability to command higher prices despite falling inflation. In addition, many companies are showing increased commitment to their shareholders, which could have a positive impact on the market.

The article also highlights that the Bank of Japan will maintain its accommodative monetary policy for the time being, which could influence the market outlook. A possible rise in wages and prices is also being discussed, and many expect the BoJ to end its negative interest rate policy alongside annual wage negotiations in April.

Overall, the outlook for the Japanese stock market is positive given current developments and forecasts, but there are also potential risks, particularly related to monetary policy and exchange rate fluctuations.