Stock prices hit new all-time highs What's happening in the stock market [Economic Column]

The Nikkei Stock Average has renewed its all-time high, which was reached at the height of the bubble economy.

This is due to the strong performance of Japanese companies and investors' expectations for corporate transformation.

On the other hand, some are wary of overheating as stock prices have been rising at a rapid pace since the beginning of the year.

We asked experts and economists how they view current stock prices, along with the data that serves as the basis for their judgments.

(Economy Department reporter Hiroaki Tsuboi)

New highest price

On the 22nd of this month, the Nikkei Stock Average rose significantly, closing at 39,098.68 yen, breaking the all-time high of 38,915.87 yen set on December 29, 1989, at the height of the bubble, for the first time in 34 years. Did.

The market was excited by the historic milestone, reaching a new all-time high.

What are the factors behind the rise in stock prices?

Market participants point out that the rise in stock prices is the result of a combination of various positive factors.

[US stock prices] High

-tech stocks rise, Dow Jones Industrial Average hits record high

[Solid corporate performance]

Highest profits expected for third consecutive year (TSE Prime Market)

[Expectations for corporate structural reform]

TSE calls for reforms, shareholder returns

[Yen depreciation]

1

dollar = around 150 yen Raising profits of exporting companies

[Bank of Japan's monetary policy]

Bank of Japan ``Easy financial environment even after negative interest rates are lifted''

Will foreign money be the driving force? Will there be a shift away from China?

Against this backdrop, foreign investors are said to be driving the Japanese stock market.

Foreign investors now account for more than 60% of the trading volume of Japanese stocks, and have a greater influence on the market than during the bubble period, when the trading volume was in the 10% range.

According to a TSE summary, foreign investors have been net buyers of Japanese stocks for seven consecutive weeks this year.

Rising expectations for Japanese stocks can also be seen in the results of a survey by Nomura Asset Management, Japan's largest asset management company.

This survey asked over 300 overseas investors whether they rate Japanese stocks as "positive" or "negative."

A year ago, nearly half of respondents said they were negative, but by summer last year, there had been a sudden shift in favor of positive respondents.

It is also said that there is a growing movement among these foreign investors to shift money from China to Japan.

Against the backdrop of the real estate recession, stock prices have been on a marked downward trend in the Chinese market.

As a result, investment money that had previously been concentrated in China within Asia is now being attracted to Japanese stocks.

In fact, according to a summary by the Institute of International Finance (IIF), which analyzes money flows, the amount of foreign money that flowed out of China's stock and bond markets last year (2023) was 84.5 billion dollars, or 12.5 trillion yen in Japanese yen. It's going up.

Divided views

Is this stock price real?

Opinions vary among experts and economists.

We asked him about his views on the current stock price level and future developments, along with the data that supports his views.

Ryomaru Kumagai, vice president of Daiwa Institute of Research, says that he focuses on the ``Price Earnings Ratio'' (PER).

PER is an indicator that shows how many times the stock price is compared to the net income per share.

During the bubble period, the PER ratio of Japanese companies was 70 times, but now it is around 16 times.

I will explain that the current stock price is by no means high.

Ryomaru Kumagai, Vice Chairman, Daiwa Institute of Research

: ``Japanese companies' PER ratios were extremely high during the bubble period, but they are currently lower than those of American companies.The current stock price level is appropriate and is not in a bubble.Japan's economy is solid. Expectations for an end to deflation are rising due to sustained wage increases.The Bank of Japan's message that it will maintain an accommodative financial environment even after ending negative interest rates is also a tailwind.We can expect stock prices to continue rising. However, overseas factors such as the US presidential election, China's economic slowdown, and issues in Ukraine and the Middle East pose future risks.

Tohide Kiuchi, executive economist at the Nomura Research Institute, cited the potential growth rate as one of the criteria for making decisions.

It is the rate of economic growth that can be achieved when all the factors of capital, labor, and productivity are utilized, and is said to indicate a country's economic strength.

He emphasizes that the potential growth rate, which was around 4% during the bubble period, has since fluctuated between 0% and 1%, and most recently remained at 0.7%.

Tohide Kiuchi, Executive Economist, Nomura Research Institute

: ``The current high stock price is due to the influx of investment money against the background of external factors such as high stock prices in the United States, weak yen, and capital inflows from China.The potential growth of the economy. The stock market has remained sluggish compared to the bubble period, and stock prices do not reflect the strength of the Japanese economy.The current pace of increase is excessive, and the inflow of investment money is considered to be temporary, leading to doubts about sustainability. There is a question mark.”

Professor Emeritus Noriyuki Itami of Hitotsubashi University, who has studied the management of Japanese companies for many years, believes that the current stock price itself is not at a surprising level.

Furthermore, he points out that the management attitude of Japanese companies will be questioned in the future.

It should be noted that while the amount of dividends paid to shareholders of large companies has increased year by year over the past 20 years, the amount of capital investment has hardly changed, and in 2021 it was less than the amount of dividends.

Professor Emeritus Noriyuki Itami of Hitotsubashi University

: ``In the first place, it is strange that Japan is the only country that has not been able to surpass the level of over 30 years ago, even though stock prices have been rising for a long time in other countries overseas. Against the backdrop of global monetary easing after the coronavirus pandemic.'' This is a natural result given the influx of speculative money.One reason for the low growth after the bursting of the bubble was that Japanese companies lost confidence and did not make investments that would lead to growth.Dividends themselves are not to blame. However, there is no way a company can grow without investment. Taking advantage of this stock price hike, companies should take risks and shift to a management style that increases investment in people, such as capital investment and wage increases for growth. is"

The new record high for stock prices is certainly a positive sign for the Japanese economy.

However, it seems necessary to not only look at these numbers, but also to look calmly at whether Japanese companies can continue to grow and whether the Japanese economy can take the next step.

Featured plans

Next week, there will be a series of announcements of important economic indicators in Japan and the United States.

On the 27th, the consumer price index for January will be announced in Japan, and on the 29th, the PCE (Personal Consumption Expenditure) for January will be announced in the United States.

Investors are paying close attention to the data as it could provide clues as to the direction of monetary policy by the central banks of Japan and the United States.