The Japanese stock market is experiencing déjà vu these days. Its most important stock market, the Nikkei index, which brings together 225 companies from the land of the sun, is trading at 38,916 points, a level at which it was a whopping 34 years ago. In 1989, the Japanese miracle shone after decades of economic prosperity that brought companies like Sony, Mitsubishi, Toyota and Nissan public. Japan was the successful economic model of this decade; The Japanese businessman was a regular supporting character in Hollywood films. The euphoria (and foreign currency from exports) sent both the yen and the real estate market soaring, the bubble burst and the hangover left the country in decades-long deflation. This even gave rise to a word: Japanization, which suggests secular economic stagnation, in terms of prices and production, but also in terms of demographics and consumption.
The Nikkei index reached 39,000 points on the last business day of 1989, a month and a half after the fall of the Berlin Wall. In 2024, in the heat of Wall Street and the depreciation of the yen against the dollar, the Asian selective price was again above 38,000 points. So far this year there has been a rise of 15%, more than the S&P 500's 5% or the Nasdaq's 7%, while the Topix index, which tracks all the country's companies, is up 13% this year. A reassessment that has led companies like Citi and Bank of America to raise their expectations for the Nikkei for 2024. Citi strategists expect the index to end the year at 45,000 points, compared to 39,000 a few months ago, while Bank of America puts it at 38,500 points, compared to 35,000 previously. Since the Nikkei's lows in March 2003, the index has recovered more than 380%.
As in the 1980s, technology was the driving force of the Nikkei: semiconductor and technology companies such as Lasertec and Cyberagent rose more than 8,000% during this period. Given the growing popularity of microchip stocks, the Japanese stock exchange will launch its own semiconductor index at the end of March. But also from retail giants like Fast Retailing – owner of Uniqlo and competitor to Inditex – which has since increased by more than 4,300%. The companies that have lost the most value since 2003 include the technology company Sharp (-93%), the automobile manufacturer Mitsubishi Motors (-84%) and the energy company Tokyo Electric Power, the operator of the Fukushima nuclear power plant decreased by 66%.
A big difference from Japan in the 1980s is that much of the Nikkei's rise since last year, analysts point out, is due to the depreciation of the yen against the dollar, while the Japanese currency has been overvalued since Japan's agreements is New York Hotel Plaza in 1985. So far this year, the currency has weakened by 6%, after 8% in 2023. This circumstance would have favored both exports and the involvement of foreign investors in a Japanese stock market. Comparatively cheaper. Added to this is the monetary policy of the Bank of Japan, which is reluctant to end the years of zero interest rates and is distancing itself from the other central banks. A strategy that is being questioned by Nomura, Japan's largest investment bank. It notes that “Japanese monetary policy responses could weaken the yen even further” and expects the currency to remain at 140 yen per dollar in 2024.
However, the highs of the Nikkei are mixed with gray economic developments. The Asian country is in recession and has ceded the podium of the world's third largest economy to Germany. In the final quarter of 2023, Japan's economy shrank 0.4% year-on-year, well below analysts' forecasts of 1.1% growth.
The Japanese stock market's rally in recent years has particularly benefited stocks such as Screen Holding, Advantest and Tokyo Electron, microprocessor companies that have risen 260%, 175% and 125%, respectively, in the last 12 months thanks to the semiconductor frenzy. Meanwhile, the most penalized is Aozora Bank, which was penalized for its exposure to U.S. commercial real estate loans, which fell 23% last year.
“The stars of the Japanese economy have always been the exporters,” explain sources in the Japanese banking sector Five days. “Japan is always flat. “Growth is mediocre and that is why companies are looking to expand abroad,” he recalls.
Among the export companies, the Sapporo Brewery stands out, whose shares have increased by almost 125% in the last year. A recovery boosted by new production facilities in the United States and Canada, markets with growing alcohol consumption, which increased the company's profit this year by 8.4% to 518,632 million yen (3.2 million euros). Industrial stocks are also among the biggest risers: Kobe Steel is up 136% in the last 12 months and Mitsubishi Heavy Industries is up 120%.
monetary policy.
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Guys. The Bank of Japan's insistence on maintaining negative interest rates to combat deflation and its goal of achieving a 2% inflation rate has weakened the central bank's tools, which already have negative interest rates. The Japanese reference interest rate is currently minus 0.1%. The Japanese central bank has been resorting to economic stimulus programs for years, most recently 17 trillion Japanese yen (104 trillion euros), in order to pursue a certain monetary policy.
Deflation. The Japanese economy has stuck firmly to former Prime Minister Shinzo Abe's triple economic policy, nicknamed “Abenomics,” to combat low growth after the 1990s. This strategy is based on maintaining negative interest rates, quantitative easing and maintaining a cap on the yield of 10-year Japanese government bonds.
Banking. Low interest rates have tested the banking sector, and some of the Nikkei's biggest losses have been at regional banks. Japanese banks are likely to earn more with the potential end to negative interest rates, according to a report from S&P Global.
Standardization. Analysts are confident that the Bank of Japan will begin normalizing interest rates in the first half of 2024. The supervisory authorities have not yet signaled an end to this unorthodox monetary policy.
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