• Reuters

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The 225-issue Nikkei average on Thursday recorded its highest year-end closing level since the bubble era of the 1980s, despite posting small losses in thin trading ahead of a four-day holiday.

The benchmark slipped 0.40% to 28,791.71, with about 12 stocks declining for every one that rose. The broader Topix lost 0.33% to 1,992.33, but also marked the best year-end close since 1989, following a 10.4% rally this year.

The Nikkei has rallied 4.9% this year, driven by fiscal and monetary stimulus as well as optimism for a post-pandemic economic recovery that has lifted stocks to records globally this year.

"The backdrop for stocks looks good next year," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, predicting the Nikkei will top 30,000 by end-March.

"Omicron looks like it won't result in a big shock for markets (and) investors don't seem concerned about the prospect of two or three rate hikes by the Federal Reserve next year."

The Nikkei hit its highest level of 2021 in September at 30,795.78, a first since 1990, the year of the stock market crash which had ushered in a "lost decade," a banking crisis and years of deflation and weak domestic demand from which Japan has yet to recover.

"During the bubble, price-to-earnings ratios were very elevated, but the Nikkei isn't so expensive now, so a break of 30,000 isn't a reason to worry," Ichikawa said.

In 1990, the market traded at about 50 times expected earnings, compared with around 15.5 times currently.

None of 1990's Japanese banks with hefty market capitalizations exist now, as they subsequently suffered massive loan losses and repeated mergers to survive. Now, the market is led by Toyota Motor, followed by SoftBank Group.

"It's true that Japanese stocks have been pulled higher by overseas markets, but strong earnings at Japanese companies have also been an important driver," said Takuya Yamada, an executive officer in the investment management department at PayPay Asset Management.

On Thursday though, every Nikkei sector was lower. Uniqlo store-operator Fast Retailing was the biggest drag, sliding 0.55%, while Nintendo dropped 2.03% and sauce-maker Kikkoman lost 2.13%.

SoftBank Group was the biggest gainer by index points on Thursday, rising 1.46%. The biggest percentage gainer was Z Holdings, formerly known as Yahoo Japan, which rallied 3.33%.

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