Japan’s Nikkei index heads for greatest year-end shut since 1989 | USAEMALL.com

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Japan’s benchmark Nikkei 225 stock index is on track for a record year-end close, finally surpassing a mark reached 35 years ago during the country’s 1980s economic bubble.

The index closed the year’s penultimate trading session on Friday 1.8 per cent higher at 40,281 points, with gains led by Toyota, Sony and Uniqlo parent Fast Retailing. Japan’s final trading session of the year is on Monday.

Takeo Kamai, head of execution services at CLSA Securities in Tokyo, said the market had been boosted by a “Santa rally” of dealmaking news and the prospect that Japan’s corporate giants would act more in line with investor interests.

“With the recent megamerger news of Honda and Nissan and news about more shareholder returns from Japan’s number one market cap heavyweight Toyota, there could be some cautiously opportunistic investors for a rekindling of the ‘buy Japan’ story for the upcoming year,” said Kamai.

Before this year, the Nikkei’s all-time peak was just under 39,000 points, reached in the final trading session of 1989 following years of investor euphoria about the power of Japanese companies and the value of the country’s property.

The subsequent end of Japan’s speculative mania left foreign and domestic investors deeply sceptical about the country’s equity markets, in an economy that was stagnant for decades.

But in 2024, a sustained rally driven by company share buybacks, activist funds and retail investors finally pushed stocks beyond the bubble-era levels.

The Nikkei surged to an all-time high above 42,000 points in July while the broader Topix, with a large number of medium-sized companies, surpassed its bubble-era peak in the same month.

Analysts said this year’s rally was all the more surprising because it was not propelled by foreign investors, historically the biggest deciding factor in the momentum of Japanese stocks.

Foreigners were net sellers in 2024 of about $32bn of cash stocks and futures, mostly in the second half of the year, according to the operator of the Tokyo Stock Exchange.

Since the start of the year, the Nikkei has risen just over 21 per cent, putting it among the best-performing major indices in the world as shareholder activism reached a record, the weak yen boosted the attractiveness of exports and corporate earnings hit an all-time high in the June-September quarter.

Traders said a year-end close above 40,000 would be a powerful symbol for retail and institutional investors as the government encourages households to shift more savings into equities and other investments.

Since the start of 2024, individuals have been allowed to park more of their savings in Nippon individual savings accounts, which offer long-term tax protection and have proved more attractive than analysts expected.