The second bull market really here? Nikkei rose 2% to a new high

Is the Japanese stock market starting a new bull market?

With overnight highs in the US stock market, the Japanese stock market continued its upward trend today, with the Nikkei 225 index surging over 2% during the day. By the close, the Nikkei 225 rose by 1.92% to 41,650.5 points, hitting a new historical high.

In fact, since hitting bottom on June 17th, the Japanese stock market has broken out of consolidation and achieved a strong rebound, setting new highs multiple times since July.

Thanks to several strong rallies in the Japanese stock market this year, the Nikkei 225 index has risen by over 25% cumulatively.

Why is the Japanese stock market rising?

Firstly, it is due to the boost from the expectation of a rate cut by the Federal Reserve.

Previously, with the expectation of a rate cut by the Federal Reserve repeatedly delayed, the continuous depreciation of the yen raised concerns in the market. Combined with the unclear prospects of corporate governance reform and central bank monetary policy, foreign capital began to sell Japanese stocks in large quantities, leading to a market filled with warnings of downside risks.

However, with the recent release of a series of economic data in the US, the steady decline in inflation has once again ignited expectations of a rate cut by the Federal Reserve. This means that the US-Japan interest rate differential is expected to narrow, the yen is expected to stop falling, and interest in investing in Japanese stocks is picking up.

Secondly, in terms of the Japanese stock market itself, technology stocks and export-oriented stocks have shown strong momentum. According to media reports, major Japanese chip manufacturers such as Sony plan to invest around $5 billion in the next five years to increase production. Moreover, the yen exchange rate is still hovering at historically low levels, which is favorable for export-oriented companies.

JP Morgan previously released a report stating that the scope of the rise in Japanese stocks is expanding, including semiconductor-related stocks, finance, wholesale, automotive, and other industries.

JP Morgan concluded that the recent rise in Japanese stocks is mainly driven by three factors: increased investor interest in the Japanese stock market, upward trends in corporate profit expectations, and reduced pressure from the continued depreciation of the yen, leading to a recovery in the correlation between the weakening yen and the rising Japanese stocks.

Recent data shows that by the end of the last week of June, the amount of foreign investment in Japanese stocks reached a high point in over two months.

Latest news also indicates that the world's largest pension fund - Japan's Government Pension Investment Fund (GPIF) - is preparing to reinvest some government-controlled US dollars into yen-denominated assets Analysis shows that even if GRIF chooses to convert 10% of its assets from foreign currency to yen, it would mean a change of about $150 billion, which could boost the yen under significant buying demand for funds.

Reports suggest that the Japanese government is currently reevaluating the weighting of domestic bonds, while analysts at Morgan Stanley predict that the Japanese government may also increase the weighting of domestic stocks for pension funds