Nikkei closes at 34-year peak on dovish BOJ; tech shares soar

A pedestrian is reflected on a glass of a business building while an electric board showing Nikkei index is seen in the building at a business district in Tokyo, Japan Jan 23, 2024. REUTERS/Kim Kyung-Hoon/File photo

TOKYO  —Japan’s Nikkei share average closed at the highest level in 34 years on Thursday, surging more than 2 percent after a high-ranking Bank of Japan (BOJ) official signaled that any policy tightening would be gradual.

Japanese stocks had already started the day on the front foot, following a tech-led rally on Wall Street overnight.

The Nikkei ended the day up 2.06 percent at 36,863.28, the highest close since February 1990, when the country’s so-called “bubble” economy was just starting to deflate.

BOJ Deputy Governor Shinichi Uchida said in a speech that came in the middle of the morning trading session that conditions were falling into place for an exit from massive stimulus, but “even if the BOJ were to end our negative interest rate policy, it’s hard to imagine a path in which it would then keep raising the interest rate rapidly.”

READ: BOJ plans to exit from easy policy next year but needs some good fortune

The yen slid against major peers, providing an additional tailwind for the exporter-heavy Nikkei. A weaker currency inflates the value of overseas revenue and makes products more competitive.

Japanese government bond yields flipped from an early rise to fall across maturities.

Monetary tightening bet

While Uchida’s comments were in line with the thinking among domestic analysts, foreign fast-money investors like hedge funds had been too aggressive in bets for monetary tightening this year, forcing an unwinding of positions, Shoki Omori, chief Japan desk strategist at Mizuho Securities, said.

“Markets, particularly foreign fast-money investors, were way ahead of the BOJ,” Omori said.

“The BOJ did start to lay the ground for a removal of negative interest rates, but that’s it. They didn’t want to commit to anything too early.”

Foreign investors have been a major driver of the Nikkei’s more than 10 percent surge this year, which has easily outpaced major global rivals, including the U.S. S&P 500 and Nasdaq Composite.

READ: Japan leads Asia stocks higher, central banks loom

Gains for U.S. semiconductor shares overnight lifted Nikkei chip-sector heavyweights like Tokyo Electron and Advantest, which gained 3.35 percent and 7.56 percent respectively.

Artificial intelligence (AI)-focused startup investor SoftBank Group provided the biggest boost in terms of index points, vaulting 11.06 percent after key holding Arm forecast sales and profit exceeding the market’s expectations.

Financial results continued to produce outsized winners and losers, as the reporting season heads for a crescendo next Wednesday.

Pharmaceuticals firm Kyowa Kirin was the Nikkei’s biggest percentage gainer by far, surging 19.38 percent after announcing a share buyback.

At the other end, construction company Shimizu Corp plunged 16.15 percent following its financial results.