Nikkei Closes 2024 with Historic 19% Uptick

• The Nikkei stock index ended 2024 with a 19% increase, driven by strong corporate earnings and a weaker yen.
• The Nikkei began 2024 at around 33,000, reaching a record-closing high of 42,224.02 on July Market turbulence followed the Bank of Japan’s decision to raise interest rates in July, leading to a significant strengthening of the yen and triggering sell-offs.
• Despite challenges, the Nikkei closed the year on a high note, demonstrating the resilience of the Japanese stock market.

Despite a tumultuous year, the Nikkei stock index ended 2024 on a high note, marking a 19 percent increase from the previous year. This surge was primarily driven by robust corporate earnings and a weaker yen, which bolstered export-oriented stocks. The 225-issue Nikkei Stock Average concluded with a dip of 386.62 points, or 0.96 percent, from the preceding Friday, settling at 39,894.54. Meanwhile, the broader Topix index wrapped up 16.76 points, or 0.60 percent, lower at 2,784.92.

As the year drew to a close, Japanese financial markets prepared for a brief hiatus, with operations ceasing from Tuesday through Sunday for the New Year holidays. The U.S. dollar remained robust, primarily in the upper 157 yen range. This was fueled by speculation that the interest rate differential between the United States and Japan would persist, especially after U.S. Treasury yields ascended on Friday.

The yield on the benchmark 10-year Japanese government bond experienced a slight decrease of 0.010 percentage point from Friday’s close, settling at 1.090 percent. This occurred after it reached its highest level in over 13 years on Friday. It’s important to note that bond yields move inversely to prices.

A Year of Highs and Lows

The Nikkei began 2024 at around 33,000 and steadily ascended, surpassing the previous peak in 1989 during Japan’s asset-inflated era in February. It reached a record-closing high of 42,224.02 on July 11. The Topix index also concluded at an all-time high on the same day.

However, the market underwent turbulent trading in the summer following the Bank of Japan’s unexpected decision to raise interest rates in July. This led to a significant strengthening of the yen against the dollar and triggered sell-offs of export-oriented stocks. The Nikkei experienced its largest single-day point loss on August 5, plummeting over 4,400 points, or about 12 percent, to the 31,000 level. This was due to a strengthening yen and fears of a U.S. economic recession following disappointing data.

However, the benchmark recouped much of the loss the following day, registering the largest single-day point gain in its history by rising 3,200 points, or about 10 percent. Kazuo Kamitani, a strategist in the Investment Content Department of Nomura Securities Co., noted that there was much optimism in the first half of the year. This was due to hopes for a favorable cycle in which wages increase in tandem with prices, alongside the weak yen for corporate profits.

Market Sentiment and Future Outlook

While sentiment was dampened in the second half of the year, partly due to a certification scandal by Toyota Motor Corp. and some other automakers, the Nikkei regained momentum in recent weeks on a weakening yen. Investors also welcomed merger talks between Honda Motor Co. and Nissan Motor Co.

The yen was weak for most of the year against the dollar, with the Japanese currency plunging to its lowest level in 37 years against the dollar at 161.96 in early July. This was as the dollar attracted buying on speculation that U.S. inflation will accelerate. The rapid depreciation of the yen prompted the BOJ to intervene in the market by conducting yen-buying operations several times.

On the final Monday of the year, stocks were mostly in negative territory as technology shares tracked declines in their U.S. counterparts late last week. Investors locked in gains after the benchmark soared more than 1,200 points over the three previous trading days. On the top-tier Prime Market, decliners were led by service, nonferrous metal, and electric appliance issues.