Japan's stock market hits a record high of 59,000 points for the first time in history! Central bank rate hike risk diminishes; Nvidia's earnings report provides a boost.

This Thursday, the Japan Nikkei 225 Index hit a record high during trading, surpassing the 59,000-point mark for the first time in history.

This was mainly due to a cooling of market expectations for further interest rate hikes by the Bank of Japan. At the same time, following the release of strong earnings by global AI leader NVIDIA this morning, domestic Japanese tech stocks also rose, providing support for the Nikkei Index.

Since the beginning of the year, the Nikkei 225 Index has increased by over 13%. Over the past 12 months, it has gained more than 53%.

The Nikkei 225 Index has surged over the past year

Dovish Bank of Japan Appointment Eases Market Concerns

On Thursday morning, the Nikkei 225 Index rose to a record high of 59,386.0 points, up 1%, before pulling back slightly. The broader TOPIX index also reached a record high of 3,903.35 points, after rising as much as 1.5% earlier.

The rise in Japanese stocks was mainly driven by reduced concerns over further rate hikes by the Bank of Japan, especially after the government announced plans to appoint two so-called “inflation re-ignition” advocates to the Bank’s Policy Board.

These two are Professor Togo Asada, an emeritus professor at Chuo University, and Professor Ayano Sato of Aoyama Gakuin University. They will replace Akira Noguchi and Junko Nakagawa, whose terms end on March 31 and June 29, respectively, with five-year terms.

Both Asada and Sato are dovish on monetary policy, generally supporting lower interest rates, yen depreciation, and more economic stimulus measures to promote growth.

On February 25, the Japanese government submitted personnel proposals for these two candidates to the Japanese Parliament’s Operations Committee. Their proposed appointments further reinforced expectations of a more accommodative monetary and fiscal policy stance in Japan. These expectations helped drive the stock market higher.

An analyst at OCBC Bank wrote in a report:

“The dovish tilt of the Japanese central bank candidates has reignited speculation that the BOJ may delay policy normalization, which could lead to yen depreciation and a steepening of Japanese government bond yields.”

Currently, Prime Minister Sanae Sato has pledged to implement a series of measures to boost economic growth, including increased fiscal spending and tax cuts for consumers. However, her policies may diverge from the BOJ’s, which has been more hawkish over the past two years.

Nevertheless, it now appears that Sato’s path toward fiscal reform has become clearer, especially after her ruling coalition won an outright majority in the House of Representatives earlier this month. If her government continues to promote loose monetary and fiscal policies, it will likely remain positive for the Japanese stock market, as this would release more liquidity for investment in equities.

Japanese Tech Stocks Boosted by NVIDIA Earnings

In addition to the easing concerns over the BOJ, Japanese tech stocks also contributed to the rise of the Nikkei Index this Thursday, with SoftBank Group’s stock rising over 4% in the morning.

The key reason behind this was NVIDIA’s release of a strong Q4 earnings report and its optimistic outlook for the first quarter of this year. This further indicates that demand for AI will continue to support the tech sector in the coming quarters.

However, NVIDIA’s inventory levels have increased, raising some concerns about chip demand.

Japanese chip manufacturing stocks underperformed the broader sector on Thursday, with upstream supplier Advantest down 1.9%, and Tokyo Electron falling 2.23%.

(Source: Caixin)