Japanese stocks are at a 30-year high, after a two week rally that looks set to continue today. The Nikkei225 September futures which was up 3.2% to 29,335 on Friday, is up a total 2,300 points, or 8.5% since its 20 August close. The two-week rally was given a further boost on Friday after Japanese PM Yoshihide Suga announced his plan to resign which sparked hopes that his successor may increase stimulus spending further.
The Nikkei225 futures is up another 0.5% from Friday as of 844AM, trading yet closer to the 30,000 level. The Nikkei 225 is currently trading at a price-to-earnings ratio of 17x, a discount compared to the 27x on the S&P500, which may suggest that the Nikkei225 has further legs to its rally…
Suga’s departure viewed positively by investors
Japanese Prime Minister Yoshihide Suga who had replaced Shinzo Abe in 2020, has announced that he will be stepping down after seeing approval ratings for his leadership slide on his failure to contain the pandemic.
According to Bloomberg, Suga’s slipping approval ratings have held back the performance of Japanese shares since the start of June, while equities in the US and Europe extended gains. Consequently Japan’s Nikkei 225 benchmark has gained only 8% year to date, compared with a 16% climb in the S&P 500 and a 18% advance in the Euro Stoxx 50 Index.
The irony is that the last time the Nikkei225 traded at the 30,000 level was when Suga first became Japan’s prime minister on the back of strong earnings by Japanese companies and rising vaccination rates.
Meanwhile, the only declared rival for Suga’s party leadership is former Foreign Minister Fumio Kishida, who has vowed to spend more to tackle the virus, leading to a rally since Friday as investors bet on further stimulus plans to be announced by Japan.