Japanese stocks set to remain attractive amid Nikkei’s all-time high, weak yen

The Bank of Japan is set to end its policy of holding down interest rates as inflation surpasses expectations, analysts say

If Tokyo’s push for corporate governance reforms is successful, listed companies will become more attractive to investors at home and abroad

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An electric stock board at the Tokyo Stock Exchange in Tokyo, on February 22. The Nikkei 225 has risen to all-time highs in recent trading sessions. Photo: Bloomberg

Published: 11:01am, 28 Feb 2024

Japanese stocks are maintaining a record-breaking run this week, bolstering expectations that the central bank will soon end its negative interest rates policy that has weakened the yen and lured overseas investors.

The Bank of Japan (BOJ) has been following a policy of holding down interest rates to encourage consumer spending, in contrast to the sustained rate hikes by the US Federal Reserve for nearly two years to rein in inflation.

But their policy stances are likely to be reversed sometime this year as the Fed is expected to cut interest rates while Japan is likely to raise rates. If these expectations are realised, it would narrow the difference in rates between the two countries.

The Nikkei 225 rose to a new all-time high on Tuesday for the third consecutive trading session to close at 39,239.52 while the broader Tokyo Stock Price Index (Topix) increased marginally to 2,678.46, its highest level in 34 years.

The Japanese yen has been the worst performer among major currencies so far this year, losing 6 per cent against the US dollar. It was recently trading at 150.23, near its post-1990s low of 152 to the greenback.

Foreign investors have taken advantage of the difference in interest rates - such as those holding onto US dollars - by scooping up stocks of Japanese companies. The strong earnings growth of Japanese listed companies, which are at attractive valuations, has further boosted investor demand.