Japan’s equity market experiences its most robust beginning of the year since 1990

Japanese Stock Market Sees Best New Year Surge in Decades

Photographer: Kazuhiro Nogi/AFP/Getty Images

Japanese equities have kicked off the year with their most impressive rally in decades, driven by strong interest from both international and domestic investors.

On Tuesday, both the Topix and Nikkei 225 indices extended their gains, with the two-day increase reaching 3.8% and 4.3% respectively. According to Bloomberg data, this marks the most robust start to a year for Japanese stocks since at least 1990.

One key driver behind this momentum has been significant purchases of large-cap stocks. Hideyuki Ishiguro, chief strategist at Nomura Asset Management, noted that Japanese shares continue to trade at lower price-to-earnings ratios than their US counterparts, making them attractive to foreign investors seeking core holdings.

Analysts also point to a surge in buying from individual Japanese investors, many of whom are adding to their tax-free NISA accounts as the new year begins.

Tsutomu Yamada, a market analyst at Mitsubishi UFJ eSmart Securities, suggested that after Monday’s sharp rally, some retail investors are entering the market out of fear of missing out on further gains.

The rally is being supported not only by optimism over potential US interest rate cuts, but also by expectations of stronger corporate earnings, improved governance, and pro-growth policies from Prime Minister Sanae Takaichi.

Masayuki Doshida, senior market analyst at Rakuten Securities, observed that much of the anticipated recovery in corporate profits has already been reflected in stock prices. He added that if companies report results that exceed expectations, the Nikkei 225 could climb to 55,000 or higher. The index closed Tuesday at a record 52,518.08.

Despite the positive momentum, there are lingering concerns about the sustainability of the AI-driven rally and ongoing geopolitical tensions. Doshida highlighted that developments in Venezuela could draw increased attention to the actions of China, Russia, and India, potentially introducing new geopolitical risks.