Weekly Brief: Japan’s Nikkei 225 Hit 31 Year High
- Waseda Economics and Finance Forum
- Sep 21, 2021
- 4 min read
Starting in September 2021, there is a remarkable upward trend in Nikkei 225. Specifically, on September 14, Nikkei 225 jumped to its highest intraday level since August 1990, the year when the Japanese economy experienced an asset-inflated bubble.
Japan has been the world’s best-performing major stock market for the past two weeks as people pin their hopes on new leadership, accelerated vaccination, the major change in the makeup of the Nikkei 225 index, and connections to the US stock market slumps in September.
What is Nikkei 225?
Nikkei 225 is used globally as the premier index of Japanese stocks. It began to be calculated in September 1950 and has depicted the history of the Japanese economy after World War II. Nikkei 225 is a price-weighted equity index composed of 225 stocks in the 1st section of the Tokyo Stock Exchange that has been sufficiently used as the indicator of the movement of Japanese stock markets.
New Leadership
Since Prime Minister Yoshihide Suga’s departure from the race for the ruling party leader, the Japanese stock market has emerged, and Nikkei 225 has gained almost 4%.
Suga’s departure is considered as removal of concerns for the Japanese market as people expect that it paves for a stable ruling party due to the non-success and slowness on decisions such as the Olympics and vaccines. Market participants are expecting Japanese shares to catch up with other stock markets.
There are four candidates for Japan’s ruling party race. The results of the September 11 poll by the Nikkei newspaper and TV Tokyo illustrated that Taro Kono with 27% support of becoming the next prime minister. He is also a popular candidate among domestic and foreign investors. Kono is considered an outspoken vaccine minister and seen as much of a reformist, there can be positive outlooks on the economy and stock markets. However, views can change depending on the policies that the next prime minister will adopt.
Accelerated Vaccination
Over 50% of the country’s population has received two shots of a COVID-19 vaccine on a course soon to draw levels with Britain and France. Although Japan initially started off slowly, its vaccine rollouts have made noteworthy progress. Hideyuki Ishiguro, a strategist at Nomura Asset Management Co. in Tokyo, said that with Japan resolving political uncertainties and delayed vaccination processes it is supportive for the market. Japanese equities are showing more stable performances than before and relative to U.S. and European equities.
Change in Nikkei 225
A reshuffle in the Nikkei Index is also allowing investors to become more positive on Japan. The major change to the makeup of the Nikkei 225 index will be caused by the joining of Nintendo Co., Keyence Corp., and Murata Manufacturing Co., three firms that have a combined market value of around ¥30.7 trillion. The three companies’ stock will be added on October 1st whereas Nisshinbo Holdings Inc., Toyo Seikan Group Holdings, and Sky Perfect JSAT Holdings Inc. will be removed.
Relation to US Market
The US stock market fell for consecutive weeks in the September slump. The US market’s performance can be correlated with Nikkei 225’s rise. It is arguable that investors are more inclined to look for comparably safer assets at the moment, which is characteristic of Japan. Furthermore, the yen not only being a relatively solid currency also has the attraction of being more liquid, in other words, it is more readily available to trade. It is appropriate to describe that the Yen is a place where traders and investors can seek shelter in practice.
What's Next?
As the ruling Liberal Democratic Party announced its leadership poll on September 29, for now, it may remain in the blue with which candidate will win and what policies they will adopt to hopefully stimulate the economy. Nonetheless, with aims with an 80% vaccination level by October and November, WEFF thinks that it will have a positive impact on the economy and markets.
References:
Photo of Nikkei -> KYODO
Photo of Suga Yoshihide -> Kazuhiro Nogi—AFP/Getty Images
Photo of 4 candidates for LDP -> Nikkei Asia
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