Nikkei jumps to 15-year high

published 5 March 2015

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.

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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.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.