EBC Markets Briefing | Nikkei jumps above 40,000 in bright start to 2025

The Nikkei 225 rose more than 2% on Tuesday, maintaining its high volatility. Economists predict that Japan's economy will grow more than 1% in inflation-adjusted terms in fiscal 2025 in a survey.

After rallying for two consecutive years, Japanese stocks are poised to reach new record highs in 2025, driven by corporate governance reforms and robust earnings, according to equities strategists.

Despite potential BOJ rate hikes and uncertainty caused by Donald Trump’s presidency, they see better corporate earnings as Japan transitions to a growth economy from a deflationary one.

Governor Kazuo Ueda sent a fresh reminder to bankers of rate hikes if the economy continues to improve. Some board members see a need to increase borrowing costs sooner rather than later, December’s minutes showed.

Japanese companies may show resilience against increased tariffs with more than half of their North American revenue from goods and services produced in the US, said Morgan Stanley.

Japan saw record investments from activists in 2024, according to data compiled by Bloomberg Intelligence. That in turn could help improve capital efficiency and raise shareholder returns.

The Nikkei index has been largely consolidating since late September and the trend could last until Trump’s second term begins. So short-term risk is more skewed towards the downside with support at 50 SMA.

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