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Japan’s Nikkei 225 Returns to Bubble-Economy Level Seen in 1990

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(Bloomberg) -- Japanese stocks advanced for a third day, lifting the Nikkei 225 Stock Average to a level last seen during the nation’s bubble economy more than three decades ago.

The blue-chip gauge closed at 30,670.10 in Tokyo, surpassing this year’s previous peak in February to end at the highest since August 1990. KDDI Corp. and Fanuc Corp. were the largest contributors to the Nikkei’s 0.7% gain. Electronics makers and car companies gave the biggest boosts to the broader Topix, which advanced 1%.

Japan has been the world’s best-performing major stock market over the past two weeks amid hopes for new leadership, an acceleration of vaccinations and a reshuffle in the Nikkei 225 that will add heavyweights Nintendo Co., Keyence Corp. and Murata Manufacturing Co. Crucially, foreign money is returning, with JPMorgan, Baillie Gifford and BNP Paribas Asset Management among investors who say they’re becoming more positive on Japan.

“Global allocations to Japanese equities remain limited, suggesting room for investors to add exposure,” Goldman Sachs strategists including Christian Mueller-Glissmann wrote in a note. “The rebound in Japanese equities comes after a prolonged underperformance vs. the S&P 500 and other major indices since Q2.”

Hideyuki Ishiguro, a strategist at Nomura Asset Management Co. in Tokyo, said Japan’s progress against the pandemic has been supportive for the market. On Tuesday, Japan overtook the U.S. in the proportion of those of have received first doses of Covid-19 vaccine with 63.6% having received their first shot. More than 51% of Japan’s population is now fully vaccinated.

Japan Overtakes U.S. on Vaccination After Starting Months Later

“Japan’s vaccination rate has topped 50% and is on a similar level to that of the U.S.,” Ishiguro said. “Japanese equities had been showing unstable performance relative to U.S. and European equities because of political uncertainties and a delayed vaccination process but with the two factors having been resolved, investors’ moves to unwind their previous positions will continue.”

The Nikkei 225 is now up about 12% for the year, with the Topix up 17%. That compares with a 19% gain for the S&P 500 Index and 17% advance for the STOXX Europe 600 Index.

The rally in Japan’s equity market is lifting a broad spectrum of stocks. The share of Topix members trading above their 200-day moving averages has climbed to 74% -- the highest since April -- an indication of strong market breadth. “It’s good that the gains seen recently aren’t targeted to a narrow group,” Nomura Asset’s Ishiguro said.

JPMorgan Chase & Co. strategists led by Marko Kolanovic advise adding to Japanese stocks. The resignation of Prime Minister Yoshihide Suga paves the way for a stable ruling party, a scenario that the firm says has historically produced better equity returns, they wrote in a client note. Taro Kono, a popular candidate among foreign investors, is the favorite among the public to replace Suga as the leader of the ruling party, according to a poll by Nikkei and TV Tokyo.

Foreign investors bought a net 662.7 billion yen ($6 billion) worth of Japanese equities and futures in the week through Sept. 3, the day news unexpectedly broke that Suga would not seek for another term as LDP leader. It was the most in a single week since February.

(Updates throughout with closing prices.)

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