Japan's stock market hit a 34-year high, leading Asia's gains, why did the recession stock market soar?
On February 16, the Japanese stock market made history. On the same day, the Nikkei 225 hit a 34-year high on Friday, leading Asian stock markets and on track to hit a new all-time high.
The index opened 1.07% higher and the Japanese stock market continued to rally a day after being overtaken by Germany to lose its position as the world's third-largest economy and enter a technical recession.
The slowdown has raised hopes that Japan may stick to its ultra-loose monetary policy for longer.
Other Asia-Pacific stocks outside Japan also rose on Friday, following Wall Street's rally, with the US S&P hitting a record high.
The Australian index rose 0.52%, and South Korea's Kospi climbed 0.59%. Hong Kong's Hang Seng Index opened 0.49% higher. Chinese mainland stock markets are closed for the Spring Festival holiday.
The three major U.S. stock indexes hit record highs
In the US, the three major stock indexes closed again with gains after recovering a plunge earlier in the week. The S&P climbed 0.58% to close at 5,029.73, a record high, while the Nasdaq Composite rose 0.30% to close at 15,906.17. The Dow rose 348.85 points, or 0.91%, to close at 38,773.12.
Morgan Stanley said the Nikkei is on track for a new all-time high. The current trading level is over 38,600 points, a new high in 34 years. "The Nikkei seems likely to break through its all-time high of 38,916 points set back in December 1989. ”
Morgan Stanley wrote in a research note dated Feb. 15 that it maintained its bullish stance on Japanese equities.
Morgan Stanley said that many U.S. companies have attracted the attention of investors amid the current AI boom, but there are also undervalued beneficiaries in the Asia-Pacific region. 53% of companies in Japan are seen as AI beneficiaries, almost on par with 54% in the U.S., and up from 50% in Europe and 39% in the Asia-Pacific region (excluding Japan).
According to Reuters, Japanese Finance Minister Junichi Suzuki said on Friday that it should be up to the Bank of Japan to decide when to end the negative interest rate policy.
According to economic data released this week, Japan has lost its place as the world's third-largest economy, slipped into a technical recession and sparked hopes that the Bank of Japan may stick to its ultra-loose monetary policy for longer.
A former BOJ board member said the BOJ is expected to exit the negative interest rate mechanism this spring, although weak growth will limit its ability to ease pressure on the yen's depreciation.
Bank of Japan Governor Kazuo Ueda is under pressure to curb the yen.
Morning light in Tokyo
The depreciation of the yen was due to the divergence of high interest rates in the United States and ultra-loose policies in Japan. Although constrained by high inflation, BoJ policymakers still believe that high inflation is unsustainable, even though it has dampened domestic demand and pushed the economy into a technical recession.
Sayuri Shirai, a professor of economics at Keio University in Tokyo, said in an interview: "This is a serious challenge and dilemma. She was a member of the Bank of Japan's Policy Committee from 2011 to 2016, helping to shape monetary policy decisions.
"I think the Bank of Japan is likely to make some policy changes, including removing negative interest rates this spring, because I think they're worried about side effects," she said.
This week, the yen retreated to around 150 yen to the dollar after higher-than-expected inflation data in the United States, dampening hopes that the Federal Reserve (Fed) will cut interest rates sooner. The long-term weakness of the yen has not only reduced the purchasing power of Japanese consumers, but also reduced the value of the country's exports, contributing to export growth.
"Regardless of whether the BOJ can achieve 2% growth in a steady way, I think the BOJ will make some policy adjustments this spring. Hayuri Shirai said.
Even though BoJ policymakers believe inflation is still not driven by domestic demand sustainably, the prolonged high inflation rate has hit domestic consumption – a key reason driving Japan's GDP to contract for the second consecutive quarter in the fourth quarter of last year.
While inflation has been gradually slowing, "core inflation" – excluding food and energy prices – has been above the BOJ's 2% target for more than a year.
At its January meeting, the Bank of Japan unanimously decided to keep short-term interest rates at -0.1%. It also adheres to its yield curve control policy, which is to maintain the ceiling on 10-year Japanese government bonds.
The Bank of Japan's policymakers have been a top priority for them to reflation the Japanese economy, which has been under pressure for decades of deflation.