Can Japan’s Stock Market Continue Its Record-Setting Run?

Executive summary:

  • Japan’s equity benchmark, the Nikkei 225 Index, has been on a tear in 2024, eclipsing its previous high set back in 1989. As of early April, the index is hovering near 40,000.
  • Solid economic growth, a revamp in the country’s tax-free stock investment program and corporate governance reform have helped propel Japanese equities to record highs.
  • We believe Japanese equities still have room to climb further due to a positive cyclical backdrop and improvements in corporate governance.

Japan has had two big moments in the last month, with the Nikkei 225 equity index breaking above the highs set in 1989, and the Bank of Japan (BoJ) raising interest rates for the first time in 17 years. We think that the Japanese economy is in a decent place and expect that the corporate governance reforms spearheaded by the Tokyo Stock Exchange will remain a tailwind. Moreover, we expect the Bank of Japan’s path forward for more rate hikes to be limited, given our view that many developed central banks are likely to start cutting rates in the second half of the year.

So, what’s behind the recent strength in the country’s economy and equity market?

Let’s unpack this all by starting with a step back in history to 1989.