Japan’s Nikkei Shakes Off Chip Blues to Post Best January Since 1998 (Update 1)

Reuters

12:54 JST, January 31, 2024 (updated at 16:00 JST)

TOKYO (Reuters) – Japan’s Nikkei share average notched its best January in 26 years after shaking off early chip-led declines on Wednesday.

The Nikkei recovered from losses as steep as 1% in early trading to end the day up 0.61% at 36,286.71, extending its gains for the month to 7.77%, its best start to the year since an almost 9% jump in January 1998.

It is the best-performing major stock index globally, eclipsing 3.3% gains each for the U.S. S&P 500 .SPX and Nasdaq Composite .

“The Nikkei has absolutely shot the lights out this month, and you wouldn’t want to be fighting against it,” said Tony Sycamore, a market analyst at IG.

“I can’t imagine we’re going to come all this way and not have a look at the 1989 (record) high” of 38,957.44, he said.

The Nikkei currently sits about 1.9% below a 34-year peak at 36,984.51 from Jan. 16, driven by a combination of foreign investor flows out of China, a profit-boosting weak yen and excitement over corporate governance reforms, besides sheer momentum.

Last week, technical indicators had signaled the market was overheated, but they show a much more balanced market now.

A measure of momentum called the relative strength index (RSI) has fallen from above 76 on Monday of last week, exceeding the 70 line that suggests overbought conditions, to currently sit near 67.

Chip-industry heavyweights helped drag down the Nikkei early on, buffeted by disappointing financial results from Microsoft, Alphabet and Advanced Micro Devices. However, they pared losses in the afternoon session.

Semiconductor equipment makers Tokyo Electron and Advantesteach lost a little more than 0.4%, while AI-focused startup investor SoftBank Groupsagged 0.84%.

Japan’s own earnings season is picking up pace and has produced some outsized winners and losers.

Construction machinery maker Komatsu jumped 8.6% and imaging company Canon climbed 7.9%, while electronic component maker Alps Alpine tumbled nearly 16%.

Some 319 companies are announcing earnings on Wednesday, with the reporting season peaking in mid-February.

“Foreigners have been big buyers of Japanese equities as the country gets out of deflation after 30 years,” said Kenji Abe, an equity strategist at Daiwa Securities, who projects the Nikkei will reach 40,000 by year-end.

“Companies have been raising prices, which is likely to lead to higher margins, so earnings overall should be better than last year.”