Record High in Stock Market after Long Slump

Japan’s stock market, Nikkei 225, rallied on Thursday marking all-time record high of ¥39,098 in average, surpassing ¥38,915 of December 1989 in the era of bubble economy. Having suffered from prolonged stagnation, often called “lost three decades,” Japanese economy has not shown such enthusiasm as seen in the bubble era. The focus is on how long Japan will maintain current surge.

The direct factor of the boost on Thursday was strong earnings of US chipmaker, Nvidia, which topped the world, exceeding Samsung or Intel. The boost of Nvidia was supported by demands related to artificial intelligence. There are various brands related to semiconductor industry in Japan’s stock market. Interested foreign investors joined the rally in Tokyo stock market, which embraces various brands of semiconductor business.

 

After the peak of bubble in 1989, Japan’s stock market showed a steep decline. To calm down the price of real estates, Bank of Japan introduced “total volume control,” causing burst of bubble. Nikkei average dropped to ¥7,054 in March, 2009, having experienced the financial crisis in 1997 or Lehman Shock in 2008.

 

The resurge of stock price in 2010’s was mainly supported by ultra-easy monetary policy of BOJ. The policy invited depreciation of Japanese yen, supporting the exporters in Japan, including carmakers. While companies accumulated profits, workers’ wage did not increase proportionally. While real wage in US or European countries became 1.4 times higher than in 1991, Japan could not make significant increase.

 

It has been a couple of years when a change in mind was brought to the businesses in Japan. Companies eventually took stock price into account in their management, the attitude which appeared in the form of stock buyback or increasing of dividends. More investment was directed to capital or human resources, swelling expectation to further wage hike in this spring labor negotiation. Foreign investors positively evaluated this change of business mind.

 

However, the rally in stock market in Japan is mainly brought by foreign investors. Money has been shifting from China to other countries including Japan, considering slump in real estate business in China and its growing opposition against US in trade. Stock price of Japanese companies is relatively low, helped by depreciated yen. It is fair to say that Japanese economy is still volatile depending on foreign investors’ preference.

 

What makes Japanese people sober about this rally in stock market is a vague concern for the future. While companies’ earnings marked record high, consumption has not been as active as in the bubble era, caused by sharp inflation of commodity price. Japan’s nominal GDP has dropped to the fourth position in the world.

 

It is expected that BOJ is getting rid of “different-dimensioned monetary easing,” which may generate a downward pressure on stock price. Although there is a speculation of ¥40,000 of Nikkei 225 average soon, the substance of Japanese economy does not seem to have catch up with skyrocketing stock market.

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