Editor’s Note
This week’s record-breaking rally in Japanese equities, driven by political certainty following the LDP’s election victory, underscores the market’s focus on policy continuity. While the immediate reaction is positive, investors will be watching for the administration’s next steps on fiscal and economic reforms.
This week (Feb 9-13), the Nikkei 225 showed a record-breaking rally, briefly surpassing the 58,000 yen mark for the first time in history. It closed at 56,941.97 yen, up 2,688.29 yen (4.96%) from the previous week’s close. The primary driver was the Liberal Democratic Party’s landslide victory in the House of Representatives election on February 8, which fueled expectations for the long-term continuation of the Takachi administration, known for its “responsible proactive fiscal policy.”
The Nikkei 225 surged over 2,100 yen on Monday, February 9, following the election results, and rose another 1,200+ yen the next day, approaching 58,000 yen. After the holiday on February 12, it opened higher, briefly hitting a historic high of 58,015.08 yen. However, profit-taking sales emerged due to concerns over the rapid ascent, leading to a slight decline. On February 13, the index was weighed down by a sell-off for position adjustments amid a decline in U.S. stocks and a drop in SoftBank Group (9984), which had announced earnings the previous day.
In the U.S., concerns are growing over the evolution of AI, with the latest model from Anthropic seen as a threat to software stocks, also impacting financial stocks. This sentiment spilled over to the Tokyo market, where profit-taking dominated in some tech stocks. Meanwhile, funds appeared to be rotating into domestic demand sectors.
The rapid evolution of AI has sparked fears of it replacing existing services, altering the appetite for software stocks that have led the market. Consequently, investment funds are expected to shift towards domestic demand and defensive sectors. While the Nikkei 225 remains in a strong uptrend, breaking above 58,000 yen may prompt cooling measures.
The Tokyo Stock Exchange Growth Market 250 Index continues its upward trend, supported by its 25-day moving average. As short-term adjustments in the Nikkei are anticipated, funds from individual investors may flow more easily into small and mid-cap stocks. With the peak of earnings season passing, stock picking based on re-evaluated fundamentals is expected to become active. Furthermore, searches for theme stocks related to policy expectations under the Takachi administration are likely to remain strong.
The top gainer this week was Jiban Net Holdings (6072), soaring 214.56% after an announcement regarding a major shareholder transfer. Architects Studio Japan (6085) and Unitika (3103) also saw significant gains following upward revisions to earnings forecasts. The biggest loser was Beat Holdings Limited (9399), down 41.03%, likely due to speculative moves amid a cryptocurrency downturn. Toyo Engineering (6330) fell sharply after a downward revision to its earnings forecast.
Key events to watch next week include U.S. Personal Consumption Expenditures, Retail Sales, FOMC Meeting Minutes, and earnings from Walmart. Other notable releases include Japan’s preliminary Q4 GDP, trade statistics, and various PMI and CPI data from Japan, Europe, and the U.S.