The Japanese stock market is living these days in a deja vu. Its main stock market, the Nikkei index, which groups together 225 companies from the country of the sun, is trading at 38,916 points, levels at which it was moving a whopping 34 years ago. In 1989, the Japanese miracle shone after decades of economic prosperity that boosted companies such as Sony, Mitsubishi, Toyota and Nissan on the stock market. Japan was the successful economic model of that decade; in Hollywood films the Japanese businessman was a regular secondary character. The euphoria (and foreign exchange from exports) inflated both the yen and the housing market, the bubble burst, and the hangover left the country mired in deflation that lasted for decades. It even gave rise to a word: japanizationwhich indicates secular economic stagnation, in terms of prices and production, but also demographics and consumption.
The Nikkei index touched 39,000 points on the last business day of 1989, a month and a half after the fall of the Berlin Wall. This 2024, the Asian selective has once again traded above 38,000 points in the heat of the pull of Wall Street and the depreciation of the yen against the dollar. So far this year there has been an increase of 15%, above the 5% of the S&P 500 or 7% of the Nasdaq, while the Topix index, which brings together all the country's firms, advances 13% in the anus. A revaluation that has led firms such as Citi and Bank of America to increase their expectations for the Nikkei for 2024. Citi strategists believe that the index can end the year at 45,000 points, compared to 39,000 just a few months ago, while that those of Bank of America place it at 38,500 points, compared to the previous 35,000. Since the lows set by the Nikkei in March 2003, the index has managed to recover more than 380%.
As in the 80s, technology has been the driving force of the Nikkei: semiconductor and technology companies, such as Lasertec and Cyberagent, climbed more than 8,000% in this period. Faced with the growing popularity of microchip stocks, the Japanese Stock Exchange will launch its own semiconductor index at the end of March. But also by distribution giants such as Fast Retailing – owner of Uniqlo and competitor of Inditex – which has appreciated more than 4,300% since then. In contrast to them, among the firms that have depreciated the most since 2003 are the technology company Sharp (-93%), the car manufacturer Mitsubishi Motors (-84%) and the energy company Tokyo Electric Power, the operator of the Fukushima nuclear plant. , which goes back a 66%.
A big difference with Japan in the 1980s is that a good part of the Nikkei's rise since last year is due, analysts point out, to the depreciation of the yen against the dollar, while the Japanese currency has been overvalued since the New York agreements. Hotel Plaza from 1985. So far this year the currency has weakened by 6%, after 8% in 2023. This circumstance would have favored both exports and the commitment of foreign investors to a comparatively cheaper Japanese stock market. Added to this is the monetary policy of the Bank of Japan, which resists ending the years of zero rates and marks a distance from the rest of the central banks. A strategy that is questioned by Nomura, Japan's largest investment bank, where they point out that “the responses of Japanese monetary policy could weaken the yen even further” and project that the currency will continue to be at 140 yen per dollar throughout the year. throughout 2024.
The Nikkei highs are interspersed, however, with a gray economic performance. The Asian country is in recession and has given the podium of the third largest economy in the world to Germany. In the last quarter of 2023, the Japanese economy contracted 0.4% year-on-year, well below the forecasts of analysts who expected growth of 1.1%.
The Japanese stock market rally in recent years is especially benefiting values such as Screen Holding, Advantest and Tokyo Electron, microprocessor firms, which have soared 260%, 175% and 125%, respectively, in the last 12 months thanks to the semiconductor frenzy. On the other hand, among the most punished is the Aozora bank, penalized for its exposure to US commercial real estate credit, which fell 23% in the last year.
“The stars of the Japanese economy have always been the exporters,” explains sources in the Japanese banking sector to Five days. “Japan is always flat. It registers mediocre growth and that is why companies look towards operations abroad,” he recalls.
Among the exporting companies, the Sapporo brewery stands out, whose shares have skyrocketed almost 125% in the last year. A rebound that has been favored by its new production plants in the United States and Canada, markets with growing alcohol consumption and that have boosted the company's income by 8.4% this year, to 518,632 million yen ( 3.2 million euros). Industrial values also have a place among the biggest increases: Kobe Steel has advanced 136% in the last 12 months and Mitsubishi Heavy Industries, 120%.
Monetary politics.
MZV
Guys. The Bank of Japan's insistence on maintaining negative interest rates to fight deflation and its goal of reaching 2% inflation has weakened the Central Bank's instruments as they are already at negative rates. The Japanese reference rate is currently at minus 0.1%. The Japanese central bank has been resorting to stimulus plans for years, the most recent of 17 trillion yen Japanese (104 billion euros) to try to exercise some monetary policy.
Deflation. The Japanese economy has clung tightly to the triple economic policy of former Prime Minister Shinzo Abe, nicknamed 'Abenomics' to fight against low growth after the 1990s. This strategy is based on maintaining negative rates, quantitative easing and maintaining a ceiling on the yield of 10-year Japanese Government Bonds.
Banking. Low rates have tested the banking sector, and some of the Nikkei's biggest losses have been among regional banks. Japanese banks will likely earn more with the possible end of negative interest rates, according to a report from S&P Global.
Standardization. Analysts are confident that the Bank of Japan will begin to normalize interest rates towards the first half of 2024. For the moment, regulators have not signaled an end to this unorthodox monetary policy.
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