On March 4, Japan’s benchmark Nikkei Stock Average climbed above the psychological level of 40,000 for the first time in its history. The US stock market soared, led by the US semiconductor giant Nvidia, driven by the expectation of growth in demand for artificial intelligence (AI). As if inspired by this surge, the Tokyo stock market also showed a rise in buying in the high-tech sector, reaching the key milestone instantly. The stock market is in the midst of the first boom in 34 years, which seems that Japan is now taking back the “lost 30 years.”

Against the backdrop of the weak yen, companies engaging in inbound tourism and related businesses as well as those with high overseas sales ratios are performing very well. The total profits of major companies with the fiscal year ending March 31 are expected to be the highest for the third consecutive year, attracting foreign investors with the expectation of rising profitability of Japanese companies and cheap prices due to foreign currency-denominated transactions. The inflow of “Asian money” from those who have now become reluctant to invest in Chinese stocks is also a big boost. In fact, the amount of transactions in the Tokyo market by foreign investors accounts for more than 60%, and it can be said that they are the main players in the market.

Another leading figure behind the scenes is the Bank of Japan (BOJ). In 2013, under the leadership of Haruhiko Kuroda, the Governor of BOJ, “extraordinary monetary easing” started to support the purchase of exchange-traded funds (ETFs) on a large scale that far exceeded the conventional practice. The maximum balance limit of 450 billion yen per year, set by Kuroda’s predecessor, Masaaki Shirakawa, was raised in stages, reaching 12 trillion yen by 2020. The amount invested so far stood at 37 trillion yen in book value, and the market cap is almost double that amount. Although the “extraordinary monetary easing” failed to achieve the goal in the end, it has greatly contributed to increasing the stock prices, resulting in the BOJ now being the largest shareholder in Japanese equities.

However, in the current situation, there is no sense of exaltation that existed among people during the period of “bubble economy.” The real wages of workers are not keeping up with prices. The domestic demand shortage in the period between October and December 2023 doubled from the period between July and September of the same year, reaching 4 trillion yen on an annual basis. The news that shipments of mini-vehicles are halted due to the fraud of Daihatsu, which caused a 20% drop in overall domestic new car sales in February 2024, also shows the “current situation” of household finances. On the other hand, while a shift in monetary policy is under discussion, the issue of how to settle the negative effects of the “extraordinary monetary easing” is also arising. To establish a way to avoid a “hard landing,” recovery of the real economy that exceeds the effect of the weak yen is essential, and whether it will succeed or not depends on sustainable growth investment by the private sector. This means that the real challenge awaits us.

This Week’s Focus, March 8

Takashi Mizukoshi, the President