Japanese stock index Nikkei surpasses 43,000 for the first time, marking a sixth consecutive rally.
In Tokyo, the Nikkei share average reached an all-time high on Wednesday, surpassing the 43,000 mark for the first time. The rise was primarily due to optimism around resolving trade disputes between Japan and the United States, hopes for a U.S. interest rate cut, and a strong global economic backdrop [1][2][3].
The market rally was also supported by expectations that Japanese corporate earnings will improve in the fiscal year ending March 2027 [2]. However, some securities officials have expressed concerns about the sustainability of the recent rally, as it appears to be driven largely by short-term overseas funds [2].
The Nikkei's relative strength index (RSI) rose above 75, which is a sign that the stock could be overbought and potentially due for a correction [4]. This is further supported by Japan's factory activity staying in contraction for the second consecutive month in August, indicating underlying economic weakness despite the rising stock prices [4].
The Topix advanced 1% on Wednesday, also rising for the sixth straight session. Of the Nikkei's 225 components, 183 rose, 41 fell, and one traded flat. Among the top performers, Renesas Electronics, a chipmaker, jumped more than 7%, while Sony Group gained 4.6% and Advantest, a chip-testing equipment maker, rose more than 2% [5].
The U.S. Consumer Price Index (CPI) data bolstered bets for a Federal Reserve interest rate cut next month, which also contributed to the Nikkei's gains [6]. Maki Sawada, an equities strategist at Nomura Securities, stated that a sense of relief is permeating through markets following the U.S. CPI data [6].
It's important to note that the stronger yen reduced the value of overseas revenues at Japan's heavyweight exporters, which limited Japanese stock gains in the latest session [7]. Additionally, Monday of this week was a national holiday in Japan, which may have influenced the market's performance.
In summary, while the Nikkei's record highs are a positive sign for the Japanese economy, there are signs of caution and potential overheating. The market's reliance on short-term overseas funds, skepticism by market insiders about sustainability, and weakening economic indicators such as factory activity contraction suggest underlying economic vulnerabilities and caution among market watchers.
[1] Nikkei rises to record high on U.S.-Japan trade deal, hopes for U.S. rate cut - Reuters [2] Japan Stocks Climb to Record High as U.S. Rate-Cut Bets Boost Risk Assets - Bloomberg [3] Nikkei surges on hopes for global recovery - Nikkei Asia [4] Japan's factory activity contracts for second straight month in August - Reuters [5] Nikkei, Topix hit record highs on trade deal, Fed rate cut hopes - Nikkei Asia [6] Nikkei, Topix hit record highs on trade deal, Fed rate cut hopes - Nikkei Asia [7] Stronger yen limits Japanese stock gains - Nikkei Asia
The market's encouraging performance in the Japanese industry, as indicated by the record highs of the Nikkei and Topix, can primarily be attributed to optimism around resolving trade disputes, U.S. interest rate cuts, and a robust global economic backdrop [1][2][3]. However, the rally's sustainability is questionable, given concerns about its reliance on short-term overseas funds [2]. Moreover, the Japanese finance sector might face challenges due to underlying economic weakness, as evidenced by contracting factory activity and a stronger yen [4][7].
