Following the news that the Nikkei-225 index reached a new high last week for the first time in over 30 years, Naoki Kamiyama, Chief Strategist, Nikko AM has commented on what could potentially take Japan’s stock market even higher.
“The question now is whether there are factors which can sustain the market through such turbulence and potentially take it higher. In this regard, the recent robust performance by Japan’s semiconductor-related shares could be the next hot topic for the market in 2024. These firms are enjoying support with the semiconductor cycle seemingly having bottomed out and many have seen a strong recovery in revenues. In the longer run, Japan’s semiconductor-related firms stand to benefit from factors such as active government support, partnerships and alliances among the sector’s domestic companies, leading foreign manufacturers setting up production hubs in Japan, and realignment of supply chains.
Japan was once a semiconductor powerhouse and developments towards the country regaining some of its former heft could become the stock market’s growth story for 2024. Such a growth narrative may provide some stability to the market when the time comes for the BOJ to end its negative interest rate policy and pave the way for monetary policy normalisation. It will be worth remembering that when the central bank takes a step towards normalising monetary policy, its decision will be based on confidence that the rise in wages has become sustainable. A sustained rise in wages, coupled with persisting labour shortages, would result in increased consumption and capex, in turn allowing the stock market to ride out any appreciation by the yen resulting from the BOJ’s change in policy. For the time being, we therefore maintain our view of the Nikkei ending the year around 36,500.”
