Japan's Nikkei 225 index rose above the psychological level of 40,000 points for the first time, opening the door to further gains in a market that is witnessing a series of historic highs.
The blue-chip index rose as much as 1% to 40,301.30 points on Monday, setting a new intraday record. Technology stocks, which have helped drive stocks higher over the past year, led the rally, with Advantest Corp. among the top performers.
The broader Topix index also rose but remains about 6% below the record high it hit more than three decades ago before Japan’s asset price bubble burst. Both the Nikkei and the Topix found support from U.S. consumption data, which added to expectations that the Federal Reserve may be able to cut interest rates as early as June — a boost to investor sentiment around the world.
“The 40,000 level for the Nikkei 225 is certainly a key psychological level, which can act as resistance and bring volatility to the index,” said Charu Chanana, a Singapore-based strategist at Saxo Capital Markets. “However, when structural factors remain in the index’s favour and the yen continues to weaken, this is more likely to be a bullish signal than to fuel any overbought concerns in Japanese equities.”
The Nikkei index reclaimed its 1989 peak last month as investors from around the world flocked to Japan's biggest companies on the back of improving shareholder returns, a weak yen and booming corporate earnings.
Warren Buffett's endorsement of Japanese foreign trade companies last year boosted confidence in the country's market, while concerns about a slowdown in China have prompted many funds to shift to Japan.
The Nikkei’s moves were muted after hitting the key level on February 22, with investors taking profits and some analysts expressing surprise at the speed of the rally. However, the downside was limited as investors returned to buying on dips.
Foreign investors remain bullish on Japanese stocks. BlackRock, the world’s largest asset manager, and Amundi Asset Management, Europe’s largest money manager, expect earnings growth and changes in corporate governance to continue the strength.
