MARKET EYES: Buybacks, AI Boom, Takaichi behind Nikkei’s Historic Run

Tokyo, Oct. 27 (Jiji Press)–In 2023, the Nikkei 225 stock average initially traded below 30,000, but it later began to rise above that level thanks to the Tokyo Stock Exchange’s market reform initiative. The Nikkei was further boosted by the generative artificial intelligence boom, in which AI-related stocks surged. On Monday, the index finally reached the historic threshold of 50,000 amid hopes for active fiscal spending under new Japanese Prime Minister Sanae Takaichi. In March 2023, the TSE urged listed companies with a price-to-book value ratio below one to improve the situation. This call, aimed at increasing the value of listed companies, prompted such companies to accelerate buybacks of their own shares. “Overseas investors began to allocate funds to Japanese shares in hopes of management reform by Japanese companies,” said an official at a bank-affiliated securities firm. In February 2024, the Nikkei average climbed above 39,000 to rewrite its all-time high for the first time since 1989. Continued share buybacks by listed companies propelled the Nikkei above 40,000 in March 2024. In summer of that year, the Nikkei advanced as high as above 42,000, led by AI-related stocks, which followed the strength of their U.S. peers, such as Nvidia. In April this year, U.S. President Donald Trump triggered a global stock sell-off by announcing the introduction of reciprocal tariffs. Still, stocks later picked up in line with progress in tariff negotiations between the United States and other countries, as well as amid hopes for interest rate cuts by the U.S. Federal Reserve. Japanese shares rose to new highs after then Prime Minister Shigeru Ishiba announced his resignation in September and Takaichi was elected new leader of the ruling Liberal Democratic Party and became prime minister this month. “The so-called Takaichi trade, or buying shares based on expectations for her fiscal expansionist policy stance, caused the Nikkei to burst above 50,000,” said an official at a major brokerage firm. Still, about 40 pct of the Nikkei’s gains since Takaichi’s victory in the LDP leadership election can be attributed to surges in three components–technology investor SoftBank Group, semiconductor testing device maker Advantest and chipmaking equipment maker Tokyo Electron. “The reality is the continued AI boom since last year,” an official of an asset management firm said. Underlying the Japanese stock market’s strength since 2024 is “the Japanese economy’s shift from deflation to inflation,” said an official at a private think tank. As inflation decreases the value of cash and deposits, the think tank official said, “companies are investing in equipment, and individuals are spending on consumption, thus putting the Japanese economy on a growth path.” Hopes are still high for stocks to continue to rise in the medium to long term. END [Copyright The Jiji Press, Ltd.]