(News Bulletin 247) – The Tokyo index crossed this threshold for the first time on Monday and reached a historic high. The Japanese stock market benefits from the weakness of the yen and the Chinese markets.

The Japanese stock market continues its irresistible rise. The Nikkei 225, the flagship index of the Tokyo Stock Exchange, ended Monday above 40,000 points for the first time in its history (+0.5% to 40,109.23 points), in the wake of gains on Wall Street late last week.

Nothing seems to be stopping the Nikkei these days, which has jumped 20% since the start of the year and last month surpassed its previous all-time highs dating from December 1989.

The Nikkei had already soared by 28% last year, its best annual performance in ten years.

Several tailwinds explain this meteoric rise, including the persistent weakness of the yen, which inflates the international profits of Japanese companies while leaving their shares cheap for foreign investors.

>> Access our exclusive graphic analyses, and gain insight into the Trading Portfolio

Salary negotiations to watch

“The 40,000 points of the Nikkei 225 is certainly a key psychological level, which could offer some resistance to the index and bring volatility,” Charu Chanana, strategist at Singapore-based Saxo Capital Markets, told Bloomberg. “But when structural factors remain favorable and yen weakness continues, it is more of a bullish signal than a signal of overbought Japanese stocks,” he continues.

The slump in Chinese financial markets and the quest for non-Chinese investments due to geopolitical risks are also benefiting the Tokyo Stock Exchange. Furthermore, Japanese companies reward their shareholders more than in the past, with more generous dividends and more frequent share buyback programs.

The broader Topix index, on the other hand, fell on Monday by 0.12% to 2,706.28 points.

An element of attention to watch in the coming months: the “shunto” (“spring struggle”), that is to say the social negotiations between unions and employers from March-April on wages and living conditions.

“This year, during the crucial spring wage negotiations (Shunto), wage increases are expected to exceed those of last year, which were the highest in 30 years,” explains Bank of America. The American establishment judges that these increases should reach around 2.5% or even 3% over one year and constitute the major catalyst for the first half of the year for Japanese stocks.

“The rise in real wages leads to an improvement in consumer morale, which makes it easier for companies to increase their prices and contributes to improving margins and returns on equity,” the bank explains.

Last year, Shunto caused the Japanese stock market rally, because it confirmed the end of the country’s deflationary spiral.

(With AFP)