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38,000 and Rising: Sun Doesn’t Set on Tokyo Stock Exchange

December 22, 1989

TOKYO (AP) _ The Tokyo Stock Exchange is heading for the 40,000 barrier that bullish Japanese analysts hope will make it a bellwether for the world’s financial markets.

While American markets have been battered by recession fears and volatile swings, Japanese stocks have risen ever higher, buoyed in part by the nation’s growing sense of itself as a global economic leader.

″Until a couple of years ago, the first thing in the morning brokers used to do was to check how the Dow Jones did overnight,″ said Kenji Maeda of Yamaichi Securities Co., referring to the widely watched New York Stock Exchange barometer.

Now, he said, ″it’s not just Wall Street but something else - political, economic news or disaster - that affects us here and elsewhere, too.″

Tokyo is certainly not immume from the jitters that plague investors in other markets. Just this past week, worries about rising interest rates in Japan and the implications of the U.S. attack in Panama knocked stock prices off their record-setting pace.

But, over the course of the last several weeks, the Tokyo market has set a string of new highs. Since Wall Street’s Oct. 13th debacle, when the Dow Jones industrial average lost more than 190 points, the 225-issue Nikkei Stock Average has gained more than 3,800 points, or about 10 percent.

It took only six trading days for the Nikkei to jump from 36,000 to 37,000, and 10 more trading days to surpass the 38,000-point mark recently.

The index has risen more than 8,000 points, or nearly 30 percent, in the course of the past year, hitting its current record of 38,586.18 last Monday. Analysts predict it will hit 40,000 early next year.

The Dow Jones average, by comparison, is up about 500 points over the year, or a little less than 25 percent.

The Nikkei closed out the week Friday at 38,040.37, dragged down by the concerns over interest rates and Panama.

Not everyone reads the year’s numbers as good news. Many foreign economists say the Tokyo market is overpriced and they play down its worldwide importance. They say European markets still follow New York, as they did during the October drop, though Tokyo is admired for its resilience.

Analysts credit affluent investors, a shortage of traded shares due to Japan’s interlocking companies, fairly stable foreign exchange and interest rates, and widely used index-linked buying for Tokyo’s steady rise.

Political events such as the opening of the Berlin Wall also have fueled optimism in Japan, whose economic power could be further enhanced by the growth of consumer economies in Eastern Europe. In addition, the Tokyo market tends to rise at the end of every year as dealers create momentum to get the New Year off on the right foot.

″Participants are reacting in anticipation of future trends in the world, instead of trading restlessly, watching economic fundamentals and indicators on a day-to-day basis,″ said Masahiro Umemori, an analyst with Normura Securities Co.

Added Maeda: ″The recent quick rises in share prices made investors impatient and feel obliged to buy so that they won’t miss the bus.″

Kazuyuki Suzuki, a dealer with Daiwa Securities Co., said the Nikkei picked up speed when the Berlin Wall was opened in early November.

″The index has been rising overwhelmingly fast since then, although nothing in the economy has changed, except for investors’ expectations for more business opportunities in eastern Europe,″ he said.

Others said recent statements in Washington that the United States may cut defense spending because of easing East-West tensions has boosted the Nikkei.

In Tokyo, only about 25 percent of the total number of stocks are traded on the market, while the rest are held by business alliances among companies and never offered for sale.

Rinichi Kozaki, chairman of Toyo Trust Investment Management Co., said the practice magnifies share-price rises because a lot of money is chasing the small number of shares that actually change hands.

Dealers said index-linked buying - which has been blamed for causing turmoil in the U.S. stock market - has enabled a few rich institutional investors to push up the Japan market’s direction.

Individual investors accounted for 31.6 percent of trading in November, while corporate investors had the rest, according to Tokyo Stock Exchange statistics.

Thanks in part to the increased value of the yen since 1985, the Tokyo exchange has become the world’s largest in terms of the value of listed companies. The total value is about $4 trillion, compared with about $3 trillion for New York Stock Exchange-listed companies.

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