The Nikkei Index on Thursday (11th) hit a historic high for the third consecutive day, breaking through 42,000 points for the first time. Analysts say that amid uncertainties such as the economic downturn in China and the upcoming US presidential election, foreign investors are viewing the Japanese stock market as a potential stable investment market, leading to significant investment in the Japanese stock market.
According to Nikkei Asia, the Nikkei Stock Average (also known as the Nikkei 225 Index) once again hit a new intra-day high on Thursday, rising 594.78 points or 1.4% from the previous trading day’s closing price to 42,426.77 points. The average closing price was 42,224.02 points, setting a new all-time high. In February, the index first broke the record high dating back to 1989.
Last week, data from the Japan Exchange Group showed that foreign investors net bought Japanese stocks worth 916.05 billion yen (5.67 billion US dollars), marking the largest weekly net purchase since January 12. Investors bought around 732.36 billion yen (4.593 billion US dollars) in derivative contracts and net cash purchased approximately 183.69 billion yen (1.152 billion US dollars) in stocks.
On Wednesday, Federal Reserve Chairman Jerome Powell’s speech to Congress sparked hopes of a rate cut, boosting many global stock markets this week. Powell stated that the US is still in a period of stable inflation recovery. He had previously mentioned that a rate cut could be possible once more progress is made in achieving the inflation target, as the US economy is no longer overheating.
With expectations of the US maintaining higher policy rates diminishing, foreign investors are increasingly turning their attention to the Japanese stock market. Recently, there have been speculations of funds from the Middle East flowing into Japanese blue-chip stocks.
According to Nikkei Asia, in early July, around 10 billion yen (61.80 million US dollars) of funds from the Middle East flowed into 14 major stocks.
Nozomi Moriya, a Japan stock strategist at UBS Securities, mentioned in an email on Wednesday: “There are signs that Middle Eastern investors are starting to show interest in Japanese stocks.”
Yunosuke Ikeda, the head of macro research at Nomura Securities, said: “Middle Eastern investors have a long-term perspective. From a long-term standpoint, the current weakness of the yen priced in US dollars is tolerable and attractive.”
Last year, many investors began shifting funds from the Chinese stock market to the Japanese stock market. Ikeda noted, “Throughout last year, it was very evident that Asian investors were exiting Chinese stocks and turning to Japanese stocks.” Fund managers responsible for Chinese stocks are also starting to focus on Japanese stocks.
Furthermore, the uncertainty surrounding the US presidential election has increased the attractiveness of Japanese stocks, as investors generally see Japanese stocks as relatively stable.
Moriya said, “As expectations of Trump’s victory heat up, the Japanese stock market is considered safer for investors compared to the Chinese stock market.”
Moreover, foreign investors hold an optimistic view on the profit prospects of Japanese companies in the second half of the year as the depreciation of the yen has boosted the earnings of Japanese companies abroad. Combined with overseas investors calculating their investment returns in US dollars, they have increased their investments due to the lower stock prices. Katsuhisa Tomonaga, President and Chief Investment Officer of UBP Investments, said, “The expectations of overseas investors for the improvement in corporate profitability and governance structure have heightened their interest in the Japanese stock market, continuing to see it as a strong investment target.”