Japan’s world-beating stock gains may lose steam
After a blistering run to record highs, Japanese stocks may be running out of catalysts in the near term. The benchmark Nikkei Stock Average last month climbed above 40000 for the first time ever, driven by earnings growth, a weaker yen and improvements in corporate governance, including more share buybacks. With a 21% gain in the first quarter, the index was the best-performing major market globally.
Headed into the second quarter, though, the market has factored in a great deal of the good news and now appears more vulnerable to disappointments in the near term, some analysts say. Fumio Matsumoto, chief strategist at Okasan Securities, said investors may have been overly optimistic about the outlook for further earnings growth, share buybacks and inflation. That’s because the recent strength in corporate results was driven partly by unusual factors like the recovery from the pandemic, while the rise in buybacks comes after some companies limited repurchases during the Covid era.
The current re-emergence of inflation after decades of low or negative price gains is due in no small part to external factors, he added. “I’m not saying that there will be an economic shock, but the market has been optimistic and if things don’t turn out to be as expected, there will be an adjustment," Matsumoto said. “We’d better watch out for the possibility of increasing volatility to the downside." Okasan forecasts that the Nikkei Stock Average will finish the year at 36700.
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