Japan's Nikkei 225 index approached a potential record high on Friday, extending a series of notable gains, and surpassing weak economic data as investors bet on the Bank of Japan maintaining an ultra-dovish stance for an extended period.
The technology sector, particularly chipmaking and related stocks, significantly contributed to the Nikkei's surge due to growing excitement surrounding artificial intelligence development.
As of 19:58 ET (00:58 GMT), the Nikkei 225 traded up 1.8% at 38,830.0 points, just shy of its all-time high of 38,915 points set in 1989 before Japan's "lost decade" began.
The broader TOPIX index, with less tech weighting than the Nikkei, rose 1.2%, reaching a 34-year high.
Citi analysts expressed confidence in the Japanese market rally, projecting the Nikkei to reach 45,000 by 2024, indicating an 18% upside from current levels.
The TOPIX is expected to rise to 3,100 in 2024, signaling nearly a 20% gain from its current levels.
Citi attributed the continued strength in Japanese markets to three main factors: the ongoing resilience of U.S. equity markets, accommodating monetary conditions, and strong foreign inflows.
Despite Japan slipping into a technical recession in Q4 2023 and losing its position as the world's third-largest economy to Germany, the Nikkei showed resilience.
The weak data led to increased speculation that the Bank of Japan would postpone plans to raise interest rates from ultra-low levels in 2024. The BOJ's ultra-dovish stance has been a key support for Japanese markets, attracting foreign investors seeking opportunities in a market with loose monetary conditions and a weakened yen.
While most major global peers have begun raising interest rates post-COVID, the BOJ has maintained its dovish stance. Recent data revealed a slowdown in Japanese inflation at the end of 2023, although it remained above the BOJ's 2% annual target.
The central bank has signaled that rate hikes will occur only when inflation comfortably aligns with its target and when wage growth improves.
Paraphrasing text from "Investing" all rights reserved by the original author.
