Japan's Nikkei 225 surpassed the all-time high reached in 1989

Kazuhiro Nogi/AFP/Getty Images

Pedestrians watch as Japan's Nikkei 225 shares rise in value in Tokyo on February 22, 2024.

Hong Kong

Japan's stock market finally made a new record high for the first time since 1989, when decades of economic stagnation led to a recession.

Strong gains in Japanese semiconductor stocks on the back of Nvidia's blockbuster earnings report late Wednesday helped the Nikkei index rise 2.2% to close at 39,098.68 points on Thursday, hitting its previous high on Dec. 29, 1989.

But the index has been on a tear for more than a year, driven by a combination of strong corporate earnings, a weaker yen helping exporters and an influx of foreign investors as an alternative to China's sluggish markets.

The Nikkei gained 28% in 2023, making it the best performer in Asia. It is up more than 17% so far this year. placing it ahead of other major global indices.

“This is a moment that represents a true investor recognition [lasting] The bull market in Japan has been going on for some time now, and offers future gains,” Morgan Stanley strategists wrote in a research note on Thursday.

One specific reason Hope has strong corporate earnings, they said.

D. Daniel Hurley, portfolio specialist for emerging market and Japanese equities at Rowe Price, said the rally was driven primarily by strong earnings, a weaker yen and corporate governance reforms.

The yen has fallen more than 6% against the dollar so far this year, after losing about 8% against the greenback in 2023. A weaker currency benefits Japanese exporters and makes shares of the country's companies cheaper for foreign investors.

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Japanese tech companies also have a brighter outlook as demand for AI rises, Hurley added.

Japanese semiconductor stocks rose on Thursday. After Nvidia (NVDA) It said its quarterly profit has risen 769% over a year ago. This led to a surge in Nvidia's stock in aftermarket trading.

Semiconductor producer Screen Holdings rose 10.2%. It outperformed Nikkei volumes. Advantest, which provides test equipment for the chip industry, rose 7.5%. Tokyo Electron, which sells electronics and semiconductor manufacturing equipment, rose 6%.

For the country to sustain this rally, Japan needs deep Its “corporate governance reforms, which will further increase shareholder returns,” Hurley said.

The Japanese government has been implementing corporate governance reforms since 2013, with the aim of making businesses more accountable to their stakeholders and promoting their sustainable growth.

Foreign inflows also supported the rally, Hurley added.

According to the latest estimates by Goldman Sachs, Japan's equity funds have accumulated $5.1 billion so far in 2024. Last year they registered $7.4 billion.

Last June, billionaire investor Warren Buffett's Berkshire Hathaway added to its stock Among Japan's five largest trading companies.

This story has been updated with additional information and context.

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