Written by Norman Isaac Mwambazi

Tokyo stock market surpasses Taiwan to become best performing stock market in Asia this year

As shares climbed across Asia Thursday following the Federal Reserve’s dovish interest rate projections, it was the region’s second-largest market …

As shares climbed across Asia Thursday following the Federal Reserve’s dovish interest rate projections, it was the region’s second-largest market that was the top performer. That has lifted Japan past Taiwan as the best performing stock market in Asia this year.

On Thursday, the Topix index climbed above the 2,000 point level for the first time since May 1991, while the Nikkei 225 Stock Average of blue chips was briefly set for the highest close since August 1990.

After reaching a three-decade high in February, Japan’s stocks spent much of the last month in a retreat phase. Now they appear to have resumed retracing the slow path back up to record levels that were lost after the bursting of the late 1980s economic bubble.

“The bad news is slipping away one by one, and what’s left is earnings,” said Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management. He points to the “unexpectedly dovish” signals from the Fed, Japan’s decision to lift the coronavirus state of emergency and progress being made on vaccinations among positive boosts, in addition to the recovery in earnings.

Japan is set to end a state of emergency for the Tokyo region on Sunday, having reduced infections without imposing the type of economically damaging restrictions seen in other nations, and with seemingly less damage than in the first state of emergency almost a year ago.

With the Fed decision and the state of emergency now behind them, market watchers are focusing on the Bank of Japan’s decision due Friday, where the central bank is set to end months of speculation when it announces the results of a policy review set to tweak its asset purchases.

The Fed decision “adds pressure on the Bank of Japan (BOJ) to maintain a very dovish stance,” Nikko Asset Management Chief Global Strategist John Vail said in a note on Thursday.

The BOJ is expected to signal that it will buy fewer exchange-traded funds (ETF) when stocks are high while keeping the option to aggressively purchase when needed. The bank is likely to abolish the 6 trillion yen ($55 billion) annual ETF purchase target, the Nikkei reported Thursday. The report pared gains in Japan stocks.

The yen’s “trajectory toward 110 is also a tailwind for the exporters,” said Takeo Kamai head of execution services at CLSA Securities Japan Co.

“Market sentiment feels like it is to the upside for now, but I think we remain hostage to the treasury yields.”