Japan’s benchmark Nikkei index soared to a record high of 40,000 points on Monday, driven by strong gains in technology shares. The index was boosted by the artificial intelligence boom in the U.S. market, as well as the corporate governance reform and cheap valuations in Japan. The Nikkei’s milestone reflects the optimism and confidence of investors in the Japanese economy and its recovery from the COVID-19 pandemic.
The main factor behind the Nikkei’s rally was the performance of technology shares, which followed the trend of their U.S. counterparts. The S&P 500 and the Nasdaq both closed at record highs on Friday, as investors bet on the growth potential of artificial intelligence and related sectors. The U.S. tech rally also lifted the global sentiment and demand for technology products and services.
The Nikkei’s technology sector was the third-largest contributor to the index’s rise, adding 175 points to the 316-point gain in the morning session. Some of the notable gainers were chip-testing equipment maker Advantest, which rose 3.9 per cent, chip-making equipment giant Tokyo Electron, which gained 2.7 per cent, and Shin-Etsu Chemical, which manufactures semiconductor silicon products, which rose 2.2 per cent. JSR Corp, a major maker of photoresists used in chipmaking, jumped 4.4 per cent after a media report that a state-backed fund plans to launch a tender offer for the shares this month.
Corporate governance reform and cheap valuations attract investors
Another factor behind the Nikkei’s rally was the improvement in corporate governance and the attractiveness of valuations in Japan. The Japanese government has been promoting corporate governance reform, which aims to enhance the transparency, accountability, and profitability of companies. The reform has encouraged companies to increase their return on equity, reduce cross-shareholdings, appoint independent directors, and adopt shareholder-friendly policies.
The corporate governance reform has also made Japanese stocks more appealing to foreign investors, who have been increasing their exposure to the Japanese market. Foreign investors have been impressed by the earnings growth and resilience of Japanese companies amid the COVID-19 pandemic, as well as the potential for further recovery and expansion. Foreign investors have also been attracted by the cheap valuations of Japanese stocks, which are trading at a significant discount to their global peers.
Optimism and confidence in the Japanese economy and recovery
The Nikkei’s rally also reflects the optimism and confidence of investors in the Japanese economy and its recovery from the COVID-19 pandemic. The Japanese economy has shown signs of recovery in the fourth quarter of 2021, as it grew by 1.1 per cent quarter-on-quarter, beating market expectations. The growth was driven by the rebound in domestic and external demand, as well as the easing of lockdown measures and the acceleration of vaccination.
The Japanese government has also been supportive of the economic recovery, by providing fiscal and monetary stimulus, as well as implementing various measures to contain the spread of the virus and protect the health and livelihoods of the people. The government has also been proactive in securing and administering vaccines, and has set a target of vaccinating the entire population by the end of May 2024. The government has also been preparing for the resumption of international travel and tourism, as well as the hosting of the Tokyo Olympics and Paralympics in July and August 2024.
The Nikkei’s record high of 40,000 points is a remarkable achievement for the Japanese stock market, which has overcome the challenges and uncertainties of the COVID-19 pandemic, and has demonstrated its strength and potential. The Nikkei’s rally is also a positive sign for the Japanese economy and its recovery, as it indicates the optimism and confidence of investors in the future prospects and opportunities of Japan.
