Nikkei Approaches Bubble-Era Highs After Breaching 30,000 Level

(Bloomberg) -- It’s been a long road back to 30,000 for the Nikkei 225. And while Japan’s blue-chip gauge still has miles to go to reach all-time high levels, it has certainly picked up the pace.

Gains in Japanese stocks have accelerated amid the global risk-on trade sparked by optimism over an economic recovery from the coronavirus pandemic. The local market’s heavy weighting of cyclical shares and strong earnings from leaders including Sony Corp. and SoftBank Group Corp. have lured investors, with signs that even foreigners are regaining interest.

“We are getting more investor inquiries about Japan,” analysts at Citi wrote in a note, adding that they presume that this is due to the Nikkei’s recent outperformance. Since the end of August, when Prime Minister Yoshihide Suga emerged as the likely candidate to become the first new leader in eight years and Warren Buffett made his $6 billion bet on Japanese equities, the Nikkei 225 has surged 32%, compared with a 12% gain for the S&P 500.

That reignited a recovery from its post-financial crisis sub-10,000 depths that began after Shinzo Abe became prime minister in 2012. Foreign investors eventually lost enthusiasm for his Abenomics program, and the Nikkei 225 languished between 20,000 and 25,000 for much of the past three and a half years.

But it took just half the number of trading sessions for the Nikkei 225 to jump from 25,000 to 30,000 as it did to recover from 20,000 to 25,000 in 2020. In just two trading sessions this week, the stock average has added almost 1,000 points.

That has some now thinking the unthinkable -- that the Nikkei 225 could top the record close of 38,915.87 it reached on the final trading day of 1989, just as the asset-price bubble was about to pop.

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The blue-chip gauge has to rise about 27% from its current level to set a new all-time high. The delayed Tokyo Olympics, whose fate is still in doubt, is one factor that may determine how soon it gets there. Upcoming moves from the Federal Reserve and the Bank of Japan -- which is cautiously eyeing tweaks to its equity-supporting ETF purchase program at a review coming in March -- are also in focus.

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Officials have been coy on the latest milestone. Finance Minster Taro Aso, not usually one to hold his tongue, declined to comment on equity prices when asked about Nikkei 225 at 30,000, as did the government’s top spokesman Katsunobu Kato.

However, the heads of Japan’s major brokerages see stocks continuing to rise in 2021. “There’s no feeling yet that shares are overvalued,” Daiwa Securities Group Inc. CEO Seiji Nakata said in a statement Monday.

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