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The Japanese stock market is having an excellent run

Tokyo Stock Exchange is poised to see another run-up in 2018 albeit with a far slower pace of gains, driven by growth in the global economy and corporate earnings. Through the entirety of 2017, the Nikkei average gained 3,650.57 points, or 19.1 percent, extending its winning streak to a sixth year. Analysts expect the Nikkei average to rise to around 25,000 — the highest close since 1991 and up almost 10 percent from 2017’s close.

The expected market rally in 2018 would mark the longest winning streak since 1989, when the Nikkei gained for the 12th straight year in the midst of the Japanese asset price bubble. Analysts expect solid growth in the global economy will continue to push Tokyo stocks higher into 2018, analysts said. The Organization for Economic Cooperation and Development said in November the global economy will expand 3.7 percent in 2018 following 3.6 percent growth estimated for 2017, as it raised its outlook for the U.S. and eurozone economies.

The upbeat economic outlook along with the expected weakness for the yen will help Japanese companies post another record profit in the new year. The dollar is forecast to trade between ¥95 and ¥120 in 2018, compared with around ¥113 in late December. With a global economic expansion, Japanese companies will likely keep double-digit growth in fiscal 2018. The U.S. tax overhaul legislation enacted late in 2017 will also provide a boost to Japanese companies heavily dependent on the U.S. market such as Toyota Motor Corp. and Sony Corp. as well as construction machinery manufacturer Komatsu Ltd.

U.S. President Donald Trump signed a $1.5 trillion tax bill into law, the biggest tax overhaul in 30 years. The law, which will slash taxes for corporations and the wealthy from 2018, is also expected to prompt some companies benefiting from the tax breaks to buy back their own shares. The Bank of Japan’s monetary policy will also drive Tokyo stocks higher. The Nikkei index will likely reach 25,000 in May, hitting the highest level for the coming year. Analysts list the high-tech sector as one of the biggest gainers in 2018, driven by solid demand for semiconductor products for use in electric vehicles. Some retailers are also likely to see an upswing on the back of the increasing number of foreign visitors to the country, they added. 

The Tokyo market has a chance of maintaining a relatively firm tone following the release of strong earnings for the fiscal first half through September. The market will be pushed up again by optimism about earnings for the whole fiscal year. According to a traditional Japanese stock market proverb, the market in 2018 — the Year of the Dog in the Chinese zodiac — is considered a good year for stocks but likely to involve the risk of volatility.

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