On 22 February 2024 the Nikkei 225 closed at 39,098.68 and beat its 1989 high for the first time, 34 years later. What drove the rise and what to bear in mind.
On Thursday 22 February 2024, the Nikkei 225 index on the Tokyo stock exchange closed at 39,098.68, up 2.2% on the previous day, and for the first time surpassed its record closing high of 38,915.87, set on 29 December 1989. It had taken 34 years and two months. It was the first close above 39,000.
What happened
The Nikkei reached that high at the very top of Japan’s financial and property bubble. It then fell to 7,054.98 in March 2009, in the middle of the financial crisis, some 82% below its peak. Since that low it has risen more than fivefold.
The immediate trigger was Nvidia: on 21 February it announced record sales and profit for the November-to-January quarter, which lifted semiconductor and technology stocks on the Japanese market.
Why it has risen
Several factors have built up. The Bank of Japan has kept monetary policy very loose since 2013, and was still holding interest rates below zero. The weak yen, at around 150 to the dollar, favours exporters. Corporate earnings were at record levels: according to Goldman Sachs, those for the last quarter of 2023 grew 45% year on year and beat forecasts by 14%.
The government is pushing corporate governance reforms so that companies improve returns for shareholders. And foreign investors bought more than ¥2 trillion of prime-market stocks in January. The Bank of Japan’s massive purchases of government bonds and exchange-traded funds and the large pandemic stimulus from 2020 also supplied liquidity to the markets, according to the portal nippon.com.
Other data complete the picture. According to CNBC, the Nikkei and the Topix were up more than 10% so far in 2024, after gaining more than 25% in 2023, and Toyota had raised its profit forecast. The Bank of Japan was still holding rates below zero even though underlying inflation had been above its 2% target for more than a year, and markets expected a change at its April meeting, pending the spring wage negotiations. Finance Minister Shunichi Suzuki said he was watching the yen with a sense of “urgency”.
The economic backdrop contrasts with the rise: Japan had recorded two consecutive quarters of falling GDP and lost its place as the world’s third-largest economy to Germany, according to data published in mid-February.
What to bear in mind
A record does not say how long it will last or where the market is heading. The Nikkei’s case illustrates why diversification and time horizon matter: anyone who invested at the 1989 peak had to wait more than 34 years to see the index at the same level. The Nikkei is also a price index: it does not include dividends and is not adjusted for inflation. The Nikkei 225 groups 225 large companies on the Tokyo exchange and is price-weighted, so companies with high share prices count for more.
For those investing from the euro area, the exchange rate counts as well as the index: the yen’s movement against the euro can add to or subtract from the result in euros. It is also worth knowing how much exposure to Japan there is, directly or within global funds, and how much depends on a few sectors, such as technology or exports. Ask your adviser how it fits into your portfolio.
A record high is a data point, not a forecast.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
