Last week, foreign investors demonstrated a notable surge in confidence in the Japanese stock market, as data from the Tokyo Stock Exchange revealed their substantial net purchase of 956 billion yen ($6.5 billion) in Japanese stocks. This transaction marked their most significant acquisition since the early days of June, underscoring the growing attractiveness of Japanese equities on the global stage, as reported by Bloomberg.
The appeal of Japanese shares has been significantly buoyed by robust international demand, contributing to the continued outperformance of the Japanese market in comparison to other major equity markets. The blue-chip Nikkei 225 Stock Average experienced a remarkable ascent of 6.6% during the past week, marking its most substantial weekly gain since March 2022.
This surge added to the impressive annual advance of 28%, reinforcing the positive sentiment surrounding Japanese equities. Interestingly, retail Japanese investors chose to capitalize on this rally, opting to offload a substantial 1.07 trillion yen in cash equities within the same week—representing the most substantial sell-off since November 2013.
The upward trajectory of both the Topix index and Nikkei 225 has propelled these benchmarks to their highest levels in 34 years. Several factors have contributed to this bullish trend, including a weaker yen, the presence of negative interest rates, and the Tokyo Stock Exchange's commitment to enhancing corporate governance standards. The confluence of these factors has created a conducive environment for investors, both domestic and foreign, fostering optimism about the future prospects of the Japanese stock market.
Amidst this positive backdrop, Hikaru Yasuda, the chief equity strategist at SMBC Nikko Securities, has articulated a bullish outlook, suggesting that the Nikkei 225 could potentially reach the 40,000 mark. Yasuda's projections are grounded in the observation that the recent surge in the gauge's value resembles the rally witnessed in April-June 2023, albeit with a more robust momentum.
He posits that this momentum indicates a strategic approach by overseas pension funds and sovereign funds, implying a sustained commitment to the Japanese market—a perspective he describes as a "long game." This forecast, if realized, could mark a significant milestone for the Nikkei 225 and further solidify its status as a beacon of strength in the global financial landscape.
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