Nikkei 225 Index Surpasses 60,000 for the First Time: What Is Driving Japanese Stocks Higher?

TradingKey - The Nikkei index has continued to strengthen recently, erasing all losses since the US-Iran conflict. During today's intraday trading, it even briefly surpassed the 60,000-point mark, setting a new recent high. Since its recent low on March 31, the index has gained 13.62%.

Over the past 20 trading days, the sectors driving the index higher have been Information & Communication, Electric Equipment, and Non-ferrous Metals; the sectors weighing on the index include Oil & Coal Products, Air Transport, and Wholesale Trade. Among heavyweight stocks, Kioxia recorded a cumulative gain of 64.19%, SoftBank rose 54.9%, Advantest climbed 21.29%, and Fast Retailing was up 12.33%; in terms of declines, Mitsubishi Corp fell 16.75%, Mitsui & Co dropped 11.85%, Nintendo fell 8.82%, and Toyota Motor decreased 7.32%.

Stocks favored by capital are mainly concentrated in the AI and semiconductor sectors, as these companies are less substantively affected by geopolitical conflicts.

The Japanese stock market reaching new highs is also inseparable from increased positioning by US investors. According to data from the Japan Exchange Group, against the backdrop of overall net selling of Japanese stocks by overseas funds in March, North American investors were the only overseas group to maintain net purchases, a trend that has continued in the current market rebound.

Goldman Sachs stated that investors generally believe the Nikkei 225's decline in March was primarily driven by global factors rather than a deterioration in Japanese domestic fundamentals, a perception that has bolstered their confidence in re-entering the market.

Another significant driving force is the weakness of the Yen. Bank of Japan Governor Kazuo Ueda stated last week that the April decision would be very difficult, as the central bank must weigh the upside and downside risks of underlying inflation. Currently, the market generally expects the timing of the next interest rate hike to be delayed until June.

Goldman Sachs noted that since Japanese authorities are unlikely to sit idly by as the Yen depreciates past the 160 level against the Dollar, the enthusiasm of unhedged US investors to participate in the market may further increase.

According to the latest research report from JPMorgan Chase, in view of the promising prospects for artificial intelligence and the weak Yen, the bank has significantly raised its year-end target for the Nikkei 225 index to 70,000 points and its year-end target for the TOPIX from 4,100 to 4,300 points.