Top reasons why the Topix and Nikkei 225 indices are soaring

The Topix and Nikkei 225 Index jumped to a record high this week, continuing a trend that started in April when it plunged to ¥30,775. The Nikkei Index jumped to a high of ¥48,200, up by 56% from the year-to-date low. 

Similarly, the Topix Index soared from ¥2,242 to ¥3,235. This article highlights some of the top reasons why Japanese stocks are in a strong bull run and are hovering at a record high. 

Topix and Nikkei 225 Index soaring after Sanae Takaichi's win

The main reason for the ongoing Nikkei 225 and Topix rally is that Sanae Takaichi won her party’s leadership position. This means that she will become the country’s first woman prime minister. 

Analysts believe that Takaichi will be a good prime minister for stocks and bad for the yen. They expect her to promote the low-interest-rate policies popularly known as Abenomics that were championed by the Late Shinzo Abe. However, Citi analysts cautioned that the rally may not last long, saying:

“Upside in the equity rally is likely limited as stocks have already risen to record-high levels and Japan equities are not undervalued relative to US or global equities after adjustments in laggard tendencies. Equities have also priced in expectations for easier fiscal policy to some extent.”

Japan stocks have mirrored their global counterparts

The Nikkei 225 and Topix Indices soared as the global stock market jumped. In the US, the S&P 500 and Nasdaq 100 Indices have soared to their all-time highs amid the ongoing AI spending boom. 

The same trend is happening in Asia, where the Hang Seng Index and other indices are in a strong rally. This surge has happened even after Donald Trump implemented substantial tariffs on goods brought from all countries, including Japan. 

Goods from Japan are being taxed at about 15%, in line with most countries. At the same time, the country committed to $7 billion a year in energy purchases and to make a $550 billion in the United States.

BoJ reluctance to hike interest rates

The other main reason why the Nikkei 225 and Topix indices have soared lately is that the Bank of Japan has been reluctant to hike interest rates this year. 

It delivered a 25 basis point hike in January, the first back-to-back rate hike in over 17 years. The increase brought the benchmark rate to 0.50%. 

However, unlike what analysts were expecting, the bank has left rates unchanged this year, and analysts now believe that it will leave them unchanged as inflation has made steady progress.

Recent data showed that the headline Consumer Price Index (CPI) slipped to 2.7% in August from 4% in January this year. This trend may continue as the stronger dollar makes it cheaper to import. 

Federal Reserve rate cuts

The Nikkei 225 and Topix indices soared after the Federal Reserve slashed interest rates in the last meeting. It cut rates by 0.25% and hinted that it would deliver more cuts in the coming meetings. 

Fed cuts are normally bullish for the stock market as they lead to a risk-on sentiment globally.

The Fed slashed interest rates because of the ongoing trends in the American economy, where the labor market has worsened in the past few months. A recent report showed that the economy lost 36,000 jobs in September.