Nikkei Tops 59,000 for First Time in History! Rate Hike Risks Recede as NVIDIA Provides Tailwinds
On Thursday, Japan’s Nikkei 225 Index hit a fresh all-time high, breaking through the 59,000-point mark for the first time in history.
The rally was primarily driven by cooling expectations for further rate hikes from the Bank of Japan (BoJ). Simultaneously, domestic tech stocks surged following the powerhouse earnings report released by global AI leader NVIDIA this morning, providing further momentum to the Nikkei.
Since the start of the year, the Nikkei 225 has gained more than 13%, while its cumulative increase over the past 12 months has exceeded 53%.
Dovish BoJ Appointments Ease Market Concerns
On Thursday morning, the Nikkei 225 rose as much as 1% to reach a record high of 59,386.0 before slightly paring gains. The broader Topix Index also climbed 1.5% during morning trading, hitting a record peak of 3,903.35.
The surge in Japanese equities was largely fueled by relief over the BoJ’s policy outlook, particularly after the government announced its intention to nominate two so-called "reflationists" to the central bank's Policy Board.
The nominees are Toichiro Asada, Professor Emeritus at Chuo University, and Ayano Sato, Professor at Aoyama Gakuin University. They are set to replace Takeo Noguchi and Junko Nakagawa, whose terms expire on March 31 and June 29, respectively, for a five-year term.
Asada and Sato are considered dovish on monetary policy, generally supporting low interest rates, a weaker yen, and aggressive economic stimulus to foster growth. The personnel proposal, submitted to the Diet on February 25, reinforced expectations for a prolonged accommodative monetary and fiscal environment, which in turn propelled the stock market.
Analysts at OCBC noted in a report:
"The dovish lean of the BoJ candidates has reignited speculation that the bank may delay policy normalization, which would weaken the yen and steepen the JGB yield curve."
Currently, Prime Minister Sanae Takaichi has pledged a suite of measures to promote growth, including increased fiscal spending and tax cuts.
While her policies initially suggested potential friction with a more hawkish BoJ, the path for her fiscal reforms has cleared following her coalition's absolute majority win in the Lower House earlier this month. A continued loose policy environment is expected to remain a tailwind for domestic stocks as it releases more liquidity for investment.
Japanese Tech Stocks Lifted by NVIDIA Earnings
In addition to easing BoJ concerns, Japanese tech shares boosted the Nikkei on Thursday, with tech giant SoftBank Group rising over 4% in morning trading.
The primary catalyst was NVIDIA’s robust fourth-quarter results and optimistic first-quarter outlook, which signaled that AI demand will continue to underpin the tech sector in the coming quarters. However, a rise in NVIDIA's inventory levels sparked some underlying caution regarding broader chip demand.
Consequently, Japanese semiconductor stocks underperformed the broader sector on Thursday. NVIDIA supplier Advantest Corp. fell 1.9%, while Tokyo Electron declined 2.23%.