Japan’s Nikkei closed at a record high overnight, fuelling hopes that the country may finally be emerging from years of stagnation.
At 40,109, the index closed Monday above the 40,000 mark for the first time, aided by Wall Street's gains late last week and a surge in technology firms, including Tokyo Electron and Advantest.
The gains helped take the index 20.5% higher for the year so far and added to speculation that the Bank of Japan could finally revert its negative interest rates policy, introduced in 2016 to battle deflation.
Danske Bank analysts noted the index’s rise had, in part, been fuelled by the loose monetary policy, which, at -0.1%, effectively sees borrowers paid to take out loans.
A cheap Japanese yen is also said to be responsible, given exports are “cheaper and more attractive to overseas buyers,” Trade Nation analyst David Morrison explained.
As per domestic news agency Kyodo, over a year of price rises above the Bank of Japan’s 2% target could also see a formal end to deflation declared.
This would almost certainly be met with an end to negative interest rates, analysts added, with a talk on Tuesday by the central bank’s chair, Kazuo Ueda, set to provide clues.
Whether the positive sentiment on both the stock market and rising prices actually translates to a turnaround from several decades worth of stagnation for the Japanese economy remains up in the air though, according to AJ Bell’s Russ Mould.
“The push for the index to new all-time highs is undoubtedly a key milestone but whether it truly marks an end to more than three decades of stagnation is still up for debate,” he said.
“One swallow doesn’t make a summer and the fact it has taken since 1989 for the index to claim a new record high is probably cause for some reflection rather than outright celebration."