Nikkei hits 34-year peak on weaker yen, defying global market trends

Japan's Nikkei share average reached a 34-year peak on Wednesday, propelled by a weakening yen that enhanced the outlook for corporate profits. Despite setbacks from overnight Wall Street declines and disappointing Chinese economic data, the Nikkei saw an impressive rise of 1.83 per cent , reaching its highest level since February 1990 at 36,239.22 earlier in the session. The index sustained a midday gain of 0.54 per cent , closing at 35,810.35.

The broader Topix also witnessed a positive trajectory, rising by 0.59 per cent . The yen's decline against a resurgent dollar, coupled with Federal Reserve Governor Christopher Waller's comments on the overestimation of U.S. interest rate cut expectations, contributed to the favourable market conditions.

Analysts noted a "warm wind blowing from a weaker yen," emphasizing the boost to corporate profitability. Nomura Securities strategist Kazuo Kamitani acknowledged a sense of market overheating, suggesting a potential pause around the 36,000 mark until the 25-day moving average, currently at 34,269, catches up.

Despite a pullback on Tuesday interrupting a six-day winning streak, the Nikkei has demonstrated remarkable performance, surging by as much as 8.31 per cent  since the start of the year, outperforming major global markets. Technical indicators, however, indicate an overbought condition.

Following the session's high on Wednesday, the Nikkei saw a rapid pullback, coinciding with the release of Chinese economic growth figures that narrowly missed analysts' estimates. Interestingly, Japanese stocks showed little immediate reaction to the data.

Foreign investors, primarily driving the Nikkei rally, find appeal in the relatively better state of the Japanese economy. Stefan Hofer, Chief Investment Strategist at LGT Bank Asia, highlighted the shift in Japan towards inflation and increased consumer spending, driving earnings growth. He anticipates this positive trend to continue into 2024 and potentially 2025.

Amidst global market uncertainties, Japan's equities market stands out as a resilient performer, attracting attention for its robust economic fundamentals and the advantageous impact of a weakened yen on corporate bottom lines.

(With Reuters inputs)