Japan’s Nikkei 225 hits record high as markets look to US for rate cut

By Staff

The Nikkei soared as investors bought automakers’ shares and other export-oriented stocks propelling the benchmark to an unprecedented high

Japan’s leading Nikkei 225 index soared to a record close of 40,913.65 on Thursday, while most other major global markets also saw gains.

Investors across the globe are eager for the Federal Reserve to cut rates that have been maintained at two-decade highs to curb growth and control inflation, with renewed hopes that price pressures are easing enough to make this feasible. In early European trading, Germany’s DAX increased by 0.2% to 18,586.00 and Paris’ CAC 40 rose by 0.8% to 7,694.52.

In London, the FTSE 100 was up by 0.7% at 8,228.90. British voters were heading to the polls in a parliamentary election on Thursday, with widespread expectations of the opposition Labour Party coming into power. The future for the S&P 500 was up by 0.1%, while that for the Dow Jones Industrial Average gained 0.2%.

The Nikkei 225 rose by 0.8% to 40,913.65, with purchases of automakers’ shares and other export-oriented stocks propelling the benchmark to an unprecedented high. The Nikkei 225’s all-time intraday trading high is 41,087.75, set on March 22. Its previous record close was 40,888.43, also achieved on March 22.

The index exceeded its longstanding record of 38,915.87, established on Dec. 29, 1989, in February. Shares in Toyota Motor Corp. leapt by 2% and Honda Motor Co. ascended by 3%. Nissan Motor Corp. surged by 4.5% and shares in computer testing equipment manufacturer Advantest Corp. increased by 2.1%.

Investors have been flocking to the Japanese market, largely due to the low value of the Japanese yen, which is currently trading at a 34-year low against the dollar. This weak yen tends to boost the profits of exporters when they are brought back to Japan. Changes in investment account regulations have also spurred on share purchases.

So far this year, the Nikkei 225 index has seen a gain of 22.4%. The index experienced a surge in the late 1980s during Japan’s bubble economy, where asset prices skyrocketed. However, it collapsed when that financial bubble burst in the early 1990s.

In other parts of Asia, Hong Kong’s Hang Seng managed to recover from early losses, rising by 0.3% to 18,028.28, while the Shanghai Composite index dropped by 0.8% to 2,957.57. Taiwan’s Taiex saw a jump of 1.5% as chip maker and market heavyweight Taiwan Semiconductor Manufacturing Corp. saw a gain of 2.7%.

In Australia, the S&P/ASX 200 surged by 1.2% to 7,831.80, while Seoul’s Kospi advanced by 1.1% to 2,824.94. Bangkok’s SET increased by 0.5%. On Wednesday, US stocks continued to rise in a holiday-shortened session after weak reports on the economy left the door open for potential interest rate cuts.

US markets will be closed on Thursday for the Independence Day holiday. On Wednesday, the S&P 500 rose by 0.5%, setting an all-time high for the second consecutive day and for the 33rd time this year. It closed at 5,537.02. The Dow dipped by 0.1% to 39,308.00, and the Nasdaq composite gained 0.9% to 18,188.30. Wall Street is hoping for a delicate balance in the economy – enough softening to curb inflationary pressures, but not so much as to cause job losses and trigger a recession.

This Friday, a highly anticipated report will be released by the US government, detailing the number of workers added to payrolls during June. The yield on the 10-year Treasury fell to 4.35% from 4.44% late Tuesday, a significant shift for the bond market. Much of this decrease came after the report on US services businesses was published.

Since April, it has been generally declining due to hopes that inflation is slowing enough for the Federal Reserve to lower its main interest rate, which is currently at its highest level in over two decades.

In other early Thursday trading, US benchmark crude oil dropped 41 cents to $83.47 per barrel in electronic trading on the New York Mercantile Exchange.

Brent crude, the international standard, fell 35 cents to $86.99 per barrel. The US dollar depreciated to 161.23 Japanese yen from 161.67 yen, reflecting expectations that potential US interest rate cuts might reduce the rate gap with Japan, where the benchmark lending rate is near zero. The euro increased to $1.0799 from $1.0787.

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