Japan's Nikkei Index Surpasses Decades-Old Record High

The Nikkei Stock Average, Japan's benchmark equity index, reached a notable milestone by briefly surpassing its record closing high that was last set during the peak of Japan's asset bubble in 1989. On a momentous Thursday morning, the index climbed 1.7% to hit 38,924.88, inching above the previous closing high of 38,915.87 from December 29, 1989. Although the index slightly retreated, it remained high at 38,868.56, a 1.6% increase from the previous day, and not far below the all-time intraday high of 38,957.44, also from 1989.

Growth in the Japanese Market

Throughout the year, leading up to this breakthrough, the Nikkei index had already shown significant growth, marking a 14% increase. This is on the heels of a robust 28% rise in 2023, with analysts attributing the growth to a combination of factors. These include the advent of modest inflation, enhancements in corporate governance practices, and the impact of a weakened Japanese yen, which tends to amplify the value of overseas earnings when converted back to the local currency.

Efforts to Enhance Market Appeal

In an effort to bolster market attractiveness and improve shareholder returns, the Tokyo Stock Exchange issued a call for companies to optimize returns on shareholders' capital and to address undervaluations in share prices. Consequently, a wave of firms moved to increase dividends and engage in share buyback programs. In tandem, the exchange has made strides over the recent years to place more independent directors onto company boards, aiming to strengthen the scrutiny and control over management decisions.

Comparative Market Performance

For years, the Japanese stock market experienced relatively slow growth and persistent deflation, causing it to fall behind other major global markets. In stark contrast, the Dow Jones Industrial Average in the United States has seen a more than fourteenfold increase since the end of 1989. However, Japan's market, together with that of India, has begun drawing in more international investment, presenting itself as an attractive option compared to the Chinese market, which is currently grappling with a downturn due to issues in the real estate sector and the government's intense scrutiny of the technology sector.

Nikkei, Japan, Stocks