🏯 JAP225 near 1990 highs 📈 Japanese euphoria?

3:26 PM 29 May 2023

⚡ Nikkei index highest from 30 years due to AI related stocks and weak Yen

  • Japan's Nikkei (JAP225) was trading today at levels not seen since July 1990. Semiconductor companies are weighing heavily on the benchmark, and have been gaining strongly lately with the AI euphoria on the Nasdaq;
  • Japan's industry ministry reported in April that its goal is to triple sales of semiconductors made in Japan to about $112.55 billion by 2030.
  • Japan's index reacted with a sizable rise on news of preliminary agreement to raise the US debt limit. It has since managed to erase some of the gains by slipping below 31,500 points

Analysts at Nomura pointed out that the level of market risk fell in the face of reaching a basic agreement, with both sides pledging to avoid even a technical default. On this wave, the Nikkei briefly exceeded the 31,500 level although it has since reduced some gains signaling that the bulls may have overdone their euphoria.Some Democrats and Republicans have criticized the preliminary agreement between House of Representatives Speaker McCarthy and US President Joe Biden. Markets are reassured that Congress, however, will vote in favor of the agreement, which was shaped by key representatives of both ruling parties. 

Japan sees ICs as strategic products to strengthen its economic development and supply chain security. Authorities in Tokyo have recently provided subsidies to global chip companies like Taiwan Semiconductor Manufacturing (TSM.US) to build new factories or expand existing ones. The country's share of the microprocessor market has fallen from 50% in the late 1980s when Japan dominated global electronics to about 10% today. Nomura analysts still see a baseline bullish scenario for Japan's benchmark. In addition, a weaker yen boosts the value of Japanese companies' overseas earnings. Advantest, a maker of hardware for Nvidia, was the leader of the gains in recent sessions, while Nikon and SoftBank shares also gained.

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Nikkei Index (JAP225), W1 interval. The index scored a correction after climbing to 30-year highs. In 2022 JAP225 consolidated between the 23.6 and 38.2 Fibonacci retracement of the March 2020 upward wave. The breakout was bullish (above 27,900 points), indicating a possible continuation of the trend. Source: xStation5Goldman, Nomura See Japan's World-Beating Stock Rally Continuing - Bloomberg

The Nikkei has risen about 22% this year, compared to 24% gains in the Nasdaq index - we can indirectly tie such powerful gains to AI. Demand for chips in data centers seems to have a growing outlook, and Japanese electronics and high-tech chips have been known around the world for decades. Still, the index has been impressive so far and is definitely higher than the global average. Source: Bloomberg

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