Japanese stocks continued their upward trajectory, with the Nikkei 225 Stock Average reaching its highest level in nearly 33 years last week.

New optimism over Japan

This surge in the market is driven by a combination of optimism regarding the US’s ability to avoid a debt default and the overall positive sentiment that surrounds investing in Japan right now. Ever since Warren Buffet expressed interest in Japan more and more interest has been turning towards Japanese stocks.

The Nikkei 225 has recently risen to 30,927, marking levels not seen in over 30 years. The Nikkei has now had its sixth consecutive week of gains, with strategists from renowned institutions such as Goldman Sachs Group Inc. and Macquarie Group Ltd. affirming the solid case for a sustained bullish run. They attribute this positive outlook to corporate governance reforms that have enhanced valuations and loose monetary policies that are providing additional tailwinds.

Bloomberg reports that Belita Ong, chairman at Dalton Investments LLC, expressed her confidence in the rally, stating on Bloomberg TV, “We believe that there are a lot of legs to this rally.” She further emphasized the shift in the Japanese market, with record share buybacks, dividend increases, and increased activism, all of which have attracted foreign investors back to the Japanese market.

The latest rise in the Nikkei gained even more momentum as the yen hit its lowest point this year. This development benefited exporters and provided greater purchasing power for dollar-based investors seeking to invest in Japanese stocks. Foreign investors have been net buyers of Japanese equities for six consecutive weeks, acquiring a net worth of ¥781 billion ($5.6 billion) in shares and futures during the week ended May 12, according to exchange data released on Thursday.

The renewed interest in Japanese stocks and the changing dynamics of the market suggests a promising outlook for investors, even though the long-term prospects may still change. As Japan becomes popular again and investors rush to increase their exposure, there is always an expectation that some market participants will eventually take profits and exit their positions to take advantage of the recent run. Does this make the Nikkei a buy on the dips?

Nikkei 225-Chart-22-05