Japan’s benchmark Nikkei 225 index surged Thursday past the record it set in 1989 before its financial bubble burst, ushering in an era of faltering growth.
The index closed Thursday at 39,098.68, up 2.2%. Its previous record was 38,915.87, set on Dec. 29, 1989. So now it is back to where it was 34 years ago.
That was more than a generation ago at the height of Japan’s post-war boom. But this time around, the economy is in recession and nobody’s talking about a bubble. Preliminary measures of exports, manufacturing, services and other indicators released Thursday suggested continued weakening.
The market sank after hitting its 1989 peak, as banks wrote off some 100 trillion yen in bad debts. Share prices remained well below the record for many years — dipping below 7,000 at one point before a series of market-boosting measures championed by the late Prime Minister Shinzo Abe in 2013 began nudging them higher.
The market has logged sharp gains in recent months, helped by strong interest from foreign investors who account for the majority of trading volume on the Tokyo exchange.
Unlike in the United States, where shares have been topping records on hopes the Federal Reserve will begin cutting high interest rates once it decides inflation is truly under control, in Japan the benchmark rate has remained at minus 0.1% for over a decade.
The Bank of Japan is still using its easy money policies to spur inflation and push growth higher, and plenty of the money it has pumped into the economy has found its way into the stock market.
At the same time, many global investors have been shifting their portfolios away from China as its economy slows and tensions flare between Washington and Beijing.
Share prices in Tokyo have risen 15% in the past three months and about 44% in the past year. In Shanghai, prices have fallen more than 11% from a year ago, while Hong Kong’s Hang Seng index is down about 22%.
Record gains in corporate earnings for Japanese companies and improved corporate governance have enhanced the appeal of shares in Japanese companies.
“As Japanese companies show signs of change I think investors are taking a closer look,” Hiromi Yamaji, group CEO of the Japan Exchange Group, said in an online briefing Wednesday sponsored by The Financial Times.
He noted that while many older Japanese are reluctant to invest in shares after the trauma of losing their savings when the bubble burst in the early 1990s, younger investors are less wary.
“The generation is changing,” Yamaji said.
A change to the Nippon Individual Savings Account program — accounts that offer tax-free gains — that took effect in January has also lured investors eager to tap higher returns into shares, although analysts say much of that money has gone into foreign markets.
Still, even a sliver of the 1.05 quadrillion yen (nearly $7 trillion) in savings held by Japanese families has a big impact.
Also, the Government Pension Investment Fund, one of the world’s biggest institutional investors, has been ramping up its investments in stocks, helping to push prices higher.
Foreign investors have plunged in, seeking bargains to be had given the yen’s weakness against the U.S. dollar, which is trading at about 150 yen compared with about 140 yen a year ago.
In January, international investors bought 125.2 trillion yen of Japanese stocks, double a year earlier, according to the Tokyo Stock Exchange. As is true in the United States, some of the biggest winners have been technology companies, like Renesas, SoftBank and Tokyo Electron.
So far, experts say Japan’s shares are not overpriced.
The price-to-earnings ratio for the Tokyo market is about 16, compared with 23 for the S&P 500, 24 for India’s Sensex, and 8 for Shanghai. In 2023, investors in Tokyo shares earned a return of more than 28%, according to the Nikkei’s website.
Meanwhile, another entirely different scenario has been playing out in China, where the markets have never fully recovered from a meltdown in 2015 that wiped out trillions in value.
Markets in both Hong Kong and the Chinese mainland have been chilled by the tensions between Beijing and Washington that oblige companies to think ever more carefully about where to invest.
The Nikkei’s new record was welcomed with applause in some of Tokyo’s brokerages, but not the sort of elation that prevailed in 1989. Back then, seven of the world’s top 10 companies by market value were Japanese. Now, none of them are.
Much of the improvement in Japanese companies’ profitability comes from overseas, source of more than 40% of their earnings, Izumi Devalier, head of Japan Economics for BoA Securities in Tokyo, said during the FT briefing.
“The stock market is not the economy,” she said.
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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
