Robust earnings and investor-friendly measures fuel Japan's Nikkei above 39,000, driving risk-on sentiment.

• Japanese equities experienced a surge in 2021 due to strong corporate earnings and measures aimed at increasing investor returns, resulting in an all-time high of 38,924.88 for the Nikkei 225.
• In 2024, Nikkei and Topix have outperformed in Asia Pacific, achieving more than 10% growth after surpassing 25% growth in 2023, marking their best annual increase in over a decade.

Japanese stocks reached a new record high on Thursday, driven by gains in banking, electronics, and consumer sectors, due to strong earnings and favorable policies, resulting in a remarkable surge in Japanese equity market this year.

In 1989, the previous record high of 38,915.87 was reached, but in 2021, the jumped nearly 2% to hit 39,029, surpassing the previous record high.

In 2023, the Nikkei and Topix have outperformed in Asia Pacific, achieving more than 10% growth after rising over 25% in 2023, marking their best annual gains in a decade.

Bank of America equity strategists have upgraded their 2024 year-end forecasts for the Nikkei 225 and Topix based on Japan Inc's solid third-quarter corporate earnings.

The rally has been supported by a weaker yen, which has shed about 6% against the dollar so far this year and is expected to drop to 33-year lows touched late last year.

Japan has been attracting significant investment from investors, following Warren Buffet's positive outlook on the country and the Japanese government's efforts to improve corporate governance, with the ultimate goal of increasing shareholder returns.

In January, more than 2 trillion yen was invested by foreigners in the Tokyo Stock Exchange's "prime" offerings, which are the largest and most liquid stocks.

Last week, Nikkei reported that the net profits of listed companies in Japan for the fiscal year ending March 2024 could potentially set a new record high for the third year in a row.

Goldman Sachs analysts report that the company's record quarterly earnings for the October-December period have increased 45% from the same period a year earlier and are 14% higher than consensus estimates.

The world's largest car manufacturer, along with other Japanese companies, upgraded its earnings forecast, featuring a larger profit margin and increased revenue.

Weak yen, strong stocks

The strengthening of the U.S. dollar against the Japanese yen has contributed to recent gains in the stock markets.

On Friday, Shunichi Suzuki, the Japanese Finance Minister, expressed his concern about the weakening yen and reportedly did so with a sense of urgency.

The weak yen has benefited some Japanese exporters but reduced the buying power of consumers in Japan.

Despite "core core inflation" surpassing its 2% target for over a year, the Bank of Japan continues to maintain the world's last negative interest rates regime.

At the April policy meeting, the BOJ is expected to abandon its negative rates regime if the spring wage negotiations indicate a significant increase in wages.

The central bank believes that increasing wages would lead to a more significant spiral, motivating consumers to spend more.

High inflation rates have negatively impacted domestic consumption, leading to a decline in Japan's GDP for two consecutive quarters, despite analysts predicting a slight expansion in the economy. This also resulted in Japan losing its position as the world's third-largest economy to Germany.