Nikkei jumps to 15-year high

Japan’s main stockmarket index, the Nikkei 225, has jumped above 18,700, its highest level since 2000.

Early this week Japan's main stockmarket index, the Nikkei 225, jumped above 18,700, its highest level since 2000. Solid global data and news of China's latest interest-rate cut, which bolstered global risk appetite, were the main causes of the latest rise. The market remains around 50% below its all-time peak of 39,000 reached in 1989.

What the commentators said

Stocks have jumped by almost a third since October 2014, when the GPIF the pension fund for public-sector employees announced that it will pour billions more into shares. The Bank of Japan has also been buying stocks.

The "tremendous buying power" from these two sources is the key reason for the latest market surge, said Nikko Asset Management's John Vail. There is also growing confidence that the new government is prioritising an overhaul of corporate governance. That would pave the way for share buybacks and dividend increases.

However, the economic backdrop is also looking increasingly healthy. Annualised GDP growth of 2.2% in the fourth quarter undershot expectations, but the recovery from the mid-year recession of 2014, induced by a hike in the consumption tax, appears to be gathering pace. In January, exports jumped by 17% year-on-year.

Corporate profits are at record levels, which bodes well for investment and for workers' incomes. There are finally signs that wages are on the rise, which would help spur consumption and stop the economy falling back into deflation. Wage growth is now running at an annual rate of 0.8%, which is a 15-year high, noted Morgan Stanley. GDP in nominal terms including inflation could expand by as much as 3% this year, the fastest rate since 1991.

Nonetheless, if inflation does slip back towards or below zero, the Bank of Japan is likely to print more money; it has said it will make every effort to get inflation up to 2% and overturn expectations of falling prices. That implies further falls in the yen and rises in the Nikkei. So we think Japanese stocks look appealing, whether the economy recovers or not.

Recommended

The MoneyWeek Podcast with Russell Napier at the Library of Mistakes
Investment strategy

The MoneyWeek Podcast with Russell Napier at the Library of Mistakes

Merryn talks to Russell Napier about Edinburgh’s Library of Mistakes, the age of debt and financial repression, plus why he has never invested in Chin…
27 May 2022
What to buy as the tech-stock bull market crashes
Tech stocks

What to buy as the tech-stock bull market crashes

The decade-long bull market in tech stocks has come to a rapid halt. Investors need to distinguish solid stocks from speculative ones rather than just…
27 May 2022
What sardines can teach investors about today's markets
Investment strategy

What sardines can teach investors about today's markets

A California tale of “eating sardines” and “trading sardines” can help us divide investments into speculative and real, says Merryn Somerset Webb. Som…
26 May 2022
Is it time to pick up growth stock bargains yet?
Investment strategy

Is it time to pick up growth stock bargains yet?

If you’re thinking of picking up some bargains from the tech stock crash, beware – there are still plenty of “growth traps” out there. John Stepek exp…
26 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
The Federal Reserve wants markets to fall – here’s what that means for investors
Stockmarkets

The Federal Reserve wants markets to fall – here’s what that means for investors

The Federal Reserve’s primary mandate is to keep inflation down, and lower asset prices help with that. So, asks Dominic Frisby – just how low will st…
25 May 2022
Should you be worried about energy windfall tax proposals?
Energy

Should you be worried about energy windfall tax proposals?

Calls have been growing for a windfall tax on UK oil and gas producers. It's a popular idea, but is it a good one? And what does it mean for investors…
24 May 2022