No. 14 — April 7, 2000


Weekly Review

--- by Jon Choy

Ignoring the fact that Japan's gross domestic product contracted during the last half of 1999 (see JEI Report No. 11B, March 17, 2000), investors signaled their confidence in the economy by pushing up equity prices on the Tokyo Stock Exchange during the January-March quarter as measured by the Nikkei average of 225 first-section shares (see Figure). Foreign interest in Japanese stocks remains strong, and domestic investors are beginning to catch buying fever. Market watchers believe that several factors are in place that will put more wind in the sails of Japanese equities and, in so doing, provide a welcome change from most of the 1990s.

In contrast with previous bouts of Japan's own version of March Madness, equities trading during the final month of FY 1999 exhibited several new characteristics:

Although it lost 369.33 points during March 30-31 trading, the Nikkei 225 average ended FY 1999 at 20,337.32 — its best showing in four fiscal years and nearly equal to FY 1995's 21,406.85 close (see Table). Since the beginning of 2000, the index more often than not has ended trading days in gain territory, brushing aside negative developments in the yen/dollar exchange rate and in overseas markets. The strength of the current upturn can be seen in the Nikkei's April 3 close. The index finished up 389.67 points at 20,726.99 on the first trading day of FY 2000, ending its two-day slide. Investors shrugged off news of Prime Minister Keizo Obuchi's incapacitation due to a stroke (see article in this issue), focusing instead on positive economic news.

Nikkei 225 Average, End-of-Year Value,
FY 1994-FY 1999

FY 1994


FY 1995


FY 1996


FY 1997


FY 1998


FY 1999


Source: Tokyo Stock Exchange

Observers agree that demand for shares from several sources could give some real legs to the current run-up in stock prices:

If Tokyo's optimism about the economy's performance during the first quarter of 2000 proves to be justified, some analysts believe that the TSE could continue its upward march for months to come. This scenario would be to banks' advantage since they can count a percentage of latent stock portfolio profits in their capital bases. According to one projection, Japan's 17 largest banks had unrealized equity profits of nearly ¥12 trillion ($109.1 billion at ¥110=$1.00) as of March 31, double the estimate for the end of September 1999. However, if the Nikkei average does stay on an upward track, the positive effects for Japan's economy could be even more broad-based.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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