16 May 2023

Japan's Topix stock index hits 33-year high

The Topix index rose to its highest level since August 1990, boosted by increased foreign investment, improved corporate governance standards and solid earnings of listed companies. According to analysts at Goldman Sachs, prospects for further growth remain good given positive indicators such as a recovery in foreign investor interest and continued monetary easing by the Bank of Japan.

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On Tuesday, the Topix index, which tracks Japan's largest companies by market capitalization, gained nearly 0.6%, pushing its year-to-date gain to 13.9%. Similarly, the Nikkei 225 index, which comprises 225 of the top blue chip companies traded on the TSE, has posted a remarkable gain of more than 16% since the start of the year. This makes Japan one of the most dynamic markets in the world today. In the past five weeks, foreign investors have actively invested in equities and futures, leading to a significant inflow of nearly USD 30 billion, one of the largest in the past decade, according to the Tokyo Stock Exchange.

On 29 December 1989, the Japanese Nikkei stock index reached a significant milestone when it reached a high of 38,916 points. This moment marked the culmination of Japan's asset-inflated economic bubble, characterised by ostentatious consumption and unwavering confidence. Unfortunately, this peak marked the final crescendo before the subsequent years witnessed a dramatic decline. The stock market experienced a sharp decline that led to a loss of over $2 trillion in value by December 1990. Japan subsequently faced a period of austerity, deflation and economic stagnation. Between 1991 and 2003, the Japanese economy recorded annual GDP growth of 1.14%, significantly lower than other developed countries.

While Japanese stocks struggled to recover from the 1989 crash, the US S&P 500 index grew more than tenfold over the same period.