Tokyo stocks are expected to remain on a firm note for the time being, even after the Nikkei average topped 15,000, as more money is likely to flow into the market from abroad, analysts said.
The Tokyo market’s rally has gathered pace since the end of the Golden Week holiday period earlier this month, with the key market yardstick up more than 1,000 points since passing 14,000 on May 7. It took 18 trading days for the index to rise from 13,000 to 14,000.
Behind the rise were growing hopes for further improvements in corporate earnings for the current business year, after the yen fell past 102 to the dollar mainly due to optimism about the U.S. economy.
Brokers noted a global trend in which investors are accelerating moves to shift money into stocks from bonds amid a growing appetite for risk. Key long-term interest rates have risen in the United States and Japan, while the major European and U.S. stock indexes stand at historically high levels.
“Japanese stocks have attracted money because they have been outperforming U.S. and European equities so far this year,” one broker said.
Reflecting increased inflows of money, trading volume and value in the Tokyo Stock Exchange’s first section have risen, enabling the market to absorb selling pressure.
“Large-scale foreign funds that take a buy-and-hold strategy have stepped up their buying of Japanese stocks since the Bank of Japan launched new quantitative monetary easing in April,” said Kenichi Hirano, adviser and market analyst at Tachibana Securities Co.
As such funds do not change their portfolio allocation policies frequently, money inflows from abroad are likely to continue to support the Nikkei average, Hirano said.
Expectations of further weakening of the yen against the dollar are expected to support the Tokyo market, analysts said. As well as bold monetary easing by the central bank, the optimistic outlook for the U.S. economy has helped to pull down the Japanese currency.
“If the yen falls to 105 to the dollar, the Nikkei may rise as high as 16,000, or a little bit higher,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co.
Kenji Shiomura, strategist at Daiwa Securities Co., said the factors that have supported Japanese stocks remain intact. “A major correction is unlikely,” he said.
If the ruling parties win enough seats in the upcoming House of Councilors election to gain control of both chambers of the Diet, further inflows of funds are likely, Shiomura added. He said the Nikkei average could rise as high as 16,500 by the end of the year if foreign exchange rates remain at current levels.
The recent faster-than-expected stock market rally has provoked a sense of caution, however.
Tachibana Securities’ Hirano noted that the surge of money from foreign investors who do not know much about Japanese stocks has made market moves different from those expected under conventional wisdom.
“I wonder if it is right for the index to keep rising despite technical indicators that signal overheating,” he said.
“Although there are uncertainties about how far the Nikkei average will rise, some market watchers now expect it to reach 18,000-20,000,” he added.