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October 30, 2017 at 02:59 AM
With all the attention being paid to U.S. and European stocks, which have been setting record highs or approaching them, advisors and investors may not have noticed that Japanese stock prices are also surging.
The Nikkei 225, a price-weighted index containing the top 225 blue-chip companies trading on the Tokyo Stock Exchange, just reached a 21-year high. It’s gained more than 28% over the past year — more than the S&P 500 (23.5%) — and is almost even with the S&P 500 index year to date, gaining 15.14% versus 15.3%. The Nikkei has also outperformed the EuroStoxx 50 and FTSE 100 over the past year and year to date.
Feeding the rally is an economy that’s experiencing its longest expansion since 2006, though second-quarter GDP growth was revised downward to 2.5% from 4% initially; a very accommodative central bank; a prime minister who’s intent on growing the economy; and a weaker yen.
Just days after his party’s big win in a recent national elections, Prime Minister Shinzo Abe called for 3% wage hikes in next spring’s negotiations between management and labor unions to help boost the economy and increase inflation. He said the government will take “all possible measures,” including tax and regulatory reform, to get companies to invest more and increase wages.
The Bank of Japan has been doing its part to revive the economy with its own brand of quantitative easing, buying not only government bonds, as the Federal Reserve did during its QE program, but also stocks in the form of ETFs and real estate. It has also adopted a 10-year interest-rate target of around 0% while maintaining a 2% inflation rate for the first time.
