Updated January 12th, 2024 at 19:32 IST
Nikkei hits 34-Year high with best weekly performance since 2022
Wages data further reinforced the likelihood of the central bank maintaining its current policy stance.
Nikkei surge: Japan's Nikkei share average reached a 34-year peak on Friday, concluding its best week since March 2022. The index closed Friday's trading session 1.06 per cent higher at 35,422.95, having soared as much as 2.25 per cent to touch 35,839.65, marking its highest level since February 1990. This week's rally saw the Nikkei gain nearly 7 per cent, consistently setting multi-decade highs each trading day.
However, amidst the euphoria, cautionary signals emerged as technical indicators, including the relative strength index (RSI), raising concerns. The RSI for the Nikkei climbed to 74.55, surpassing the 70 threshold that typically indicates an overheated market.
Experts remain cautious
While the index exhibited impressive momentum throughout the week, some experts sounded a note of caution. Nomura Securities strategist Maki Sawada stated, "It wouldn't be unusual to see a retracement at any moment of the steepest part of this rally," anticipating a potential decline at Friday's open.
The rally was propelled by diminishing expectations for an early exit from the Bank of Japan's (BOJ) stimulus, following the recent earthquake near Tokyo. Wages data further reinforced the likelihood of the central bank maintaining its current policy stance.
Foreign investor sentiment played a pivotal role in the Nikkei's surge, with finance ministry data revealing a net purchase of 296.2 billion yen ($2.04 billion) of Japanese equities in the week ending January 6. After two weeks of being net sellers, foreign investors returned to the market, contributing to the Nikkei's positive momentum.
Year-to-date, the Nikkei has outperformed major global stock indices, climbing 6.3 per cent, alongside the US S&P 500, which posted a 0.21per cent gain. In contrast, Britain's FTSE lost nearly 2 per cent, and Hong Kong's Hang Seng experienced a significant decline of 4.43 per cent.
Shinji Abe, an equity strategist at Daiwa Securities, attributed foreign investors' preference for the Japanese market to its perceived stability compared to other markets. He commented, "Foreign investors think the Japanese market is relatively better than other markets, it is not as extended as the US markets, and the economy is better than Europe or China."
While the Nikkei's strong momentum has fueled optimism, experts remain vigilant, anticipating potential retracements and emphasising the importance of monitoring technical indicators for market health. As the index approaches the 36,000 mark, market participants will closely observe whether the Nikkei can sustain its current trajectory or if cautionary signals materialise into a correction.
(with Reuters inputs)
Published January 12th, 2024 at 19:32 IST