Japan’s Nikkei 225 index put in a powerful performance last year but may find the going harder in 2020.
The Tokyo benchmark, which showcases many of the great names in Japanese business and industry, was one of the best-performing Asian stock markets last year.
In the past 12 months, the Nikkei has risen by 16.9%, despite continuing difficulties besetting the world’s third-largest economy, such as an ageing population and uncertain demand.
Huge stimulus programme
Earlier today, the index closed 0.73% higher at 24,025.17, and a month earlier, on 16 December, it traded at 23,952.35.
Three months earlier, the index stood at 22,207.21 on 15 October, and 12 months ago, on 15 January 2019, it traded at 20,555.29.
Trade Japan 225 - J225 CFD
Repeated rounds of loose monetary policy have boosted Japanese asset prices, while a greater emphasis by the country’s boardrooms on shareholders’ interests rather than solely those of the company has attracted overseas investors.
Among the Nikkei’s constituents are motor groups Nissan, Isuzu, Toyota, Mitsubishi, Mazda and Honda and consumer electronics companies Sony and Panasonic. In shipping, there is Kawasaki Heavy Industries and trading group Sumitomo is also listed, as is Nippon Steel.
The Nikkei’s 2019 performance has been ranked in Asia second only to that of the Shanghai Composite, and was helped at the end of the year by a huge $120 billion stimulus programme announced by Prime Minister Shinzo Abe.
But Mr Abe has also depressed demand at home by raising the national sales tax from 8% to 10%, and Japan continues to suffer uncertainty in relation to the on-going US-China trade dispute.
The Tokyo market has in recent years increasingly resembled major stock exchanges elsewhere in the world, as opposed to its previous very distinctive features. Not the least of these were the guiding role played by the powerful Ministry of Finance.
One example of this occurred after the Black Monday crash of October 1987. As London and Wall Street plunged, the ministry ordered Japanese stockbrokers back into the market to start buying shares again.
In its most recent Article IV health check for the Japanese economy, the International Monetary Fund (IMF) noted: “Underlying growth is expected to remain solid, notwithstanding the scheduled increase in the consumption tax rate in October 2019. However, absent mitigating fiscal measures, the consumption tax increase could lead to volatility in private consumption and investment.
“Meanwhile, monetary policy is expected to remain accommodative and support favourable financial conditions. Over the medium term, growth is projected to moderate.”
After the most recent meeting of the Bank of Japan’s monetary committee, the summary of opinions stated: “Japan's economy has been on a moderate expanding trend, although exports, production, and business sentiment have shown some weakness, mainly affected by the slowdown in overseas economies and natural disasters.
“Japan's economy has maintained its moderate expansion owing to steady domestic demand such as private business fixed investment and public investment, and the effects of a decline in external demand and the consumption tax hike have been limited. For the time being, the focus should be on examining uncertainties over the outlook.”