Japan’s main stock market index has climbed past its all-time high after a 34-year wait, exceeding the record level reached during the country’s late-1980s asset bubble.

The Nikkei 225 index of the biggest Japanese companies passed its all-time record intraday high of 38,957 points during trading on Thursday, to close above 39,000 for the first time ever. The closing level of 39,098 was described by one sales trader as the “psychological closure everyone wanted”.

The record capped a powerful rally during 2024, driven by rises in chip-related stocks. Traders on dealing floors across Tokyo reported standing ovations, whoops and cheers.

Takeo Kamai, head of execution services at CLSA in Tokyo, described a mood of “euphoria and surprise” on his firm’s trading floor, adding that the final spurt over the line had clearly been driven by strong earnings results from US chipmaker Nvidia overnight.

In an impromptu press conference, held on his firm’s Tokyo trading floor, Nomura’s chief executive, Kentaro Okuda, said Nvidia’s results had allowed investors in Tokyo to come into the market with a “sense of confidence”.

The latest gains carried the benchmark index above its level on the final trading day of 1989, when 15 Japanese companies ranked among the world’s 20 biggest by market capitalisation. The index closed that day at 38,915.

The Nikkei has risen 17.5 per cent since the start of the year, making it the world’s best-performing major index, as a falling yen lures foreign investors. A weak currency boosts the profits of the export-focused companies that have a heavy weighting among Tokyo stocks.

Money has also flowed into Japanese stocks as investors have pivoted away from China’s markets because of its slowing economy and geopolitical tensions.

The gains in Japan also follow an influx of investment by domestic households taking advantage of a new government-subsidised savings scheme.

The peak attained in 1989 has sometimes been referred to by Tokyo traders as the “iron coffin lid”, with its apparent unattainability becoming a symbol of the country’s three-and-a-half decades of economic stagnation.

“It’s an incredibly important barrier for Japan to have finally broken through,” said Bruce Kirk, chief Japan equity strategist at Goldman Sachs.

People walk past an electric screen in Tokyo displaying share price movements
Money has flowed into Japanese stocks as investors have pivoted away from China’s markets © Issei Kato/Reuters

“For the last 30-plus years, Japan has been persistently framed in relation to that December 1989 bubble era Nikkei all-time high,” Kirk added. “No matter how well it has done since the market finally bottomed, the narrative has always been tempered with an element of scepticism that references the high-water mark.”

Nikkei Inc, which calculates and publishes the index, owns the Financial Times. 

Japan’s broader Topix index, which is more closely followed by professional fund managers, is also closing in on its 1989 peak after a strong rally this year but has yet to strike a new high. On Thursday, the Topix closed 1.27 per cent higher, and is now about 8.5 per cent from its all-time peak.

Strategists at Bank of America now forecast that the Nikkei will end the year at 41,000 while the Topix will reach 2,850, just short of its all-time high of 2,884 points.

“Among Japanese investors, there is a feeling of big uncertainty and a sense that the rise has been too much, but we also can’t be left behind so we have to go along,” said Koji Toda, a fund manager at Resona Asset Management.

Japanese corporate earnings — which have nearly tripled since the bubble era — have provided a further boost as governance reforms over the decade-and-a-half since the Nikkei bottomed in 2009 start to bear fruit.

“The things that [companies] started to do right — improve balance sheets, operating margins — they’ve continued to do right,” said Pelham Smithers, a veteran analyst of Japanese stocks. “And other areas that they needed to get right — such as improve asset efficiency — they’ve started to get right.”

The Nikkei has long been the favourite market benchmark for Japanese retail investors, many of whom bet heavily on its movements through leveraged day trading. However, its weightings are calculated according to stock prices rather than market values, meaning some companies have an outsize presence.

Fast Retailing, the parent company of Uniqlo, commands by far the largest weighting of 10.5 per cent in the Nikkei, despite being half the size of Toyota in terms of market capitalisation. The stock briefly rose more than 2 per cent on Thursday.

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