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Japan Stocks Hit 21-Year High as Investors Shrug Off Concerns

TOKYO — Japan still faces deep structural problems. Its population is aging and dwindling. China has stepped up its manufacturing game. Corporate stalwarts like Toshiba and Kobe Steel have stumbled.Investors appear to be looking at the bright side.

Japan’s main stock index rose to its highest level in almost 21 years on Wednesday, buoyed by a broad rally in global markets as well as growing optimism about the Japanese economy. The surge came despite the continuing problems at Kobe Steel, a Japanese stock market stalwart. Its shares sank sharply for a second day after revelations that it had falsified data about the quality of aluminum and copper products shipped to hundreds of customers.

In large part, Japan’s stronger stock market is part of a global rise in optimism. Stock market measures in the United States have also hit new highs in recent weeks, while stocks in South Korea also hit a record on Wednesday. Markets have been lifted by robust global growth and expanding corporate profits, as the world finally appears to be shrugging off years of crises and sluggish growth.

But Japan has some of its own good news to share.

Japan’s gross domestic product has expanded for six consecutive quarters, the first time it has gone that long without a contraction in 11 years. Unemployment is at multidecade lows, and corporations are experiencing a surge in profits. Even Japan’s longtime economic bugbear — persistent wage and price deflation — has eased, with both consumer prices and incomes showing modest gains.

On Wednesday, the government said corporate machinery orders, a closely watched indicator of business spending, had risen for the second month in a row in August, gaining 3.4 percent.

Corporate machinery orders had risen for the second month in a row in August, gaining 3.4 percent.

It will be some time before Japan can hope to set all-time records. Stocks remain well below the levels they achieved at the height of Japan’s late-1980s asset bubble. The bursting of that bubble left the country with a glut of production capacity for years, a result of dwindling consumption and overinvestment during the boom years.

That imbalance is beginning to be rectified. Growing global demand for Japan’s goods, a tightening labor market and a number of other factors have taken up some of that slack. The business cycle also has been favorable: Companies are beginning to spend more to maintain aging factories and equipment, said Mitsumaru Kumagai, chief economist at the Daiwa Institute of Research.

That improvement is still nascent, Mr. Kumagai and others warn. Japan’s growth spurt has been modest, and the wage and price gains are in their early days. Japan still has overcapacity to deal with.

“For capital spending to take off in earnest will require companies to use up even more of their factory capacity,” Mr. Kumagai said.

The Nikkei 225 stock index on Wednesday edged up 58 points, or 0.28 percent, to close at 20,881, its highest level since December 1996.

Japan’s recent stock moves have also been helped by the political scene in the country.

Japan is set to hold parliamentary elections on Oct. 22, and analysts project that the governing Liberal Democratic Party will retain its hold on power.

Led by Prime Minister Shinzo Abe, the Liberal Democrats have pursued an expansionary economic policy, spending on public works and other projects and encouraging the central bank to keep borrowing costs low by buying up vast quantities of government debt. Such measures, collectively known as Abenomics, have been credited with helping drive the stock market higher.

Mr. Abe was not required to call an election this year, but he dissolved Parliament early in hopes of capitalizing on rebounding approval ratings and a disorganized opposition. Initially the move appeared to backfire, as the popular governor of Tokyo, Yuriko Koike, unexpectedly formed a new national party to challenge the Liberal Democrats.

After a start that generated a flood of news coverage, Ms. Koike’s new venture has stumbled. Polls show only about 5 percent of voters support her Party of Hope, though about a third of those surveyed remain undecided.

Via The New York Times

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