Japan's Nikkei 225 index broke through the psychological barrier of 40,000 points for the first time, opening the door to further growth in its historic rally.
The blue-chip index was **1% to 40,301 on Monday30 points, a new intraday high. Technology stocks that have helped push higher** over the past year led the gains, with the best performer being Advantest Corp.
The broader Topix index has also seen some gains**, but is still around 6% below the record set more than 30 years ago before Japan's asset bubble** burst. Both the Nikkei and the Topix were supported by US consumption data. U.S. consumer data reinforced expectations that the Fed could cut interest rates as early as June – a boon for global market confidence.
Charu Chanana, a strategist at Singapore's Saxo Capital Markets, said: "The Nikkei 225 at 40,000 points is certainly a key psychological threshold, which could put some headwind on the index and bring volatility. ”
But if structural factors remain favourable and the JPY continues to weaken, this could be more of a bullish signal than exacerbating fears that Japan is overbought. ”
The Nikkei regained its 1989 highs last month. Global investors have flocked to some of Japan's largest companies amid improving shareholder returns, a weakening yen, and growing corporate profits.
Warren Buffett's support for Japanese companies last year boosted confidence in the Japanese market, while concerns about China's economic slowdown prompted many** to turn to Japan.
After the Nikkei reached its milestone on Feb. 22, the Nikkei has been sluggish as investors took profits and some analysts expressed surprise at the speed of the event. However, due to investors' dips**, the downside is limited.
Foreign investors remain bullish on Japan**. BlackRock Inc., the world's largest asset managerand Amundi Asset Management, Europe's largest asset manager, expect earnings growth and changes in corporate governance to sustain this strong momentum.
Still, there are concerns that it may overheat.
Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank, said: "While 40,000 points in the Nikkei 225 is a threshold, it is too fast and reaching this level is a bit premature for the economy and the actual performance of companies." Economic growth is a long-distance marathon, and if you run too fast, you may soon run out of breath. ”
The Tokyo Stock Exchange is encouraging companies to publish reports on their plans to raise valuations. Some companies have already announced buybacks** and increased dividends. Management buyouts are on the rise, and activist investors are stepping up.
Outside of the financial sector, about one-third of Nikkei's constituent companies have a net cash position, meaning they have more cash than debt, which supports the case for activist investors and the Tokyo Stock Exchange. That's about twice the S&P 500 comparable.
Masahiro Yamaguchi, a senior market analyst at Sumitomo Mitsui Trust Bank, said: "This is not an unfounded fanaticism. He mentioned the healthy economic and corporate background in Japan and the United States.