Observe. Think. Chat. Do. Trade. Repeat…
This recovery came after experiencing its worst session in history just the previous day. The Nikkei index still sits some 7000 points off its recent high.
The Nikkei 225 index plunged around 5.80% to close at 35909, its most significant fall since March 2020, dipping below the 36000 for the first time since January 2024.
The broader Topix index experienced an even steeper decline of 6.14%, marking its worst performance in eight years, ending the day at 2537.
Daiwa Securities emerged as the biggest loser on the Nikkei index with an 18.85% erosion of its market cap.
Other prominent stocks also suffered losses; Softbank Group’s shares dropped over 8%, while trading giant Mitsui recorded a decline of more than 10%.
Japan’s Nikkei 225 index briefly surpassed 41000, reaching a new all-time high on Friday 22nd March 2024, as the nation’s inflation rate reportedly accelerated in February 2024. Other Asia-Pacific markets experienced declines.
The headline inflation rate in Japan for February 2024 was reported at 2.8%, an increase from the 2.2% recorded in January 2024. The core inflation rate, which excludes the cost of fresh food, also rose to 2.8% from the 2% reported the previous month.
In its monetary policy statement, the Bank of Japan (BoJ)stated that it aims to achieve the price stability target of 2% in a sustainable and stable manner.
The rally was propelled by electronics, banking and consumer stocks as robust earnings and investor-friendly measures fuel a blistering rally in Japanese equities.
The Nikkei 225 jumped 2%, surpassing the previous record high of 38,915.87 reached in 1989.
Both the Nikkei and the broader Topix have been standout performers in Asia up more than 10% so far in 2024 after surging more than 25% in 2023. Their best annual gains in at least a decade.
Japan Inc’s solid third-quarter corporate earnings have prompted Bank of America analysts to upgrade their 2024 year-end forecasts for the Nikkei 225 to 41000 from 38500. They raised their forecasts for the Topix to 2,850 from 2,715.
The rally has also been supported by a weaker yen.
After a decade-long bull run throughout the 1980’s, the Nikkei 225 index reached an all-time high of 38,915 on December 29, 1989, the last trading day of the year.
Few could have imagined, on New Year’s Eve of 1989, that the index would be lower 34 years later. As the New Year arrived, the bubble burst.
And now, Japan’s stock markets are on a tear and closing in on that elusive 38195 high of 1989 – but there’s a catch – the Zombies are coming.
Zombie firms are businesses that are unprofitable and struggling to keep afloat. They don’t have excess capital to invest and grow the business, or to pay down the loan capital.
Concerns about zombie firms are coming into focus as the Bank of Japan is tipped to raise interest rates in 2024 for the first time since 2007.
Japan’s stock markets have been on a meteoric run since the start of 2023, repeatedly breaching 33-year highs and outperforming the rest of Asia.
However, there are rising concerns that so called ‘zombie’ firms, which are unprofitable and struggling to keep afloat, could cut short that rally. The Bank of Japan is widely expected to raise interest rates this year, and that could easily tip many of these firms into bankruptcy, which could have a broader impact on the economy and stock market,
Zombie firms are nothing new in Japan. They first emerged after the stock ‘bubble’ and subsequent crash of the 1990s, when banks continued to support companies that would have otherwise gone bankrupt.
The pandemic of 2020 accelerated the problem of zombie businesses, with the number of zombie firms in Japan reportedly jumping by around 33% between 2021 and 2022.
Some experts argue that zombie firms are a drag on Japan’s productivity, innovation, and growth, as they occupy resources and crowd out more efficient firms. The debate on how to deal with zombie firms is ongoing and may have implications for Japan’s economic recovery and future prospects.
Others suggest that zombie firms may have a positive effect, such as preserving employment, social stability, and industrial diversity.
Surely, there is no room for inefficiently run businesses making little or no profit in any economy.
Watch out for the Zombies!
Some analysts think that the long-term prospects for the Japanese markets look good.
The Nikkei 225 index is a benchmark of the Japanese stock market. It is composed of 225 large companies listed on the Tokyo Stock Exchange. The index has been fluctuating between 20000 and 30000 points for most of the past decade. It recovered from the lows of the global financial crisis in 2008 and 2009.
According to some market strategists, the Nikkei 225 index could reach 40000 points in the next 12 months. Fundamentals are ‘pointing in the right direction’ and investor interest in Japan is increasing.
This would breach the Nikkei’s all-time high of 38915 reached in December 1989. However, others suggest the rally will struggle somewhere between 36000 and the all-time high. This suggest that much of the good news is already priced in.
I think I could probably have guessed that too. The Nikkei hasn’t reached the original high of 1989 for 35 years!
It’s due a new record, isn’t it?
The Nikkei 225 reached its all-time high on 29 December 1989, during the peak of the Japanese asset price bubble, when it reached an intra-day high of 38,957.44, before closing at 38,915.87. This was after a decade-long bull run throughout the 1980s, when the index grew sixfold.
Since then, the index has never surpassed this level, and has experienced several periods of decline and stagnation. As of October 4, 2023, the index closed at 30,526.88, down by 2.28% from the previous day and 8389 points off its all-time high.
