Kuroda Stock Whispering Returns as Nikkei Blasts Past 24,000

(Bloomberg) -- The Kuroda effect has returned to the Japanese stock market.

On Tuesday, Japanese shares rallied past milestones last seen almost 27 years ago and investors have the Bank of Japan to thank for that.

Traders can now breathe relief as the one lingering worry for a buoyant stock market is now out of the way after the Bank of Japan indicated no change in monetary policy -- and said inflation expectations remain more or less unchanged.

Governor Haruhiko Kuroda also delivered a message to investors speculating the BOJ might be losing its taste for stimulus: Not so fast. He said the central bank wasn’t in a position to even consider an exit. “The Bank of Japan thinks it’s necessary to continue tenaciously with the current powerful easing for the sake of the economy,” Kuroda told reporters.

The Nikkei 225 Stock Average leaped over the 24,000 mark for the first time since 1991 while the broader Topix index surpassed 1,900. Local equities have had a euphoric start to the year with analysts echoing the prospect of sustained global economic growth, backed by solid corporate earnings.

“Investors were tuned into whether the BOJ will hint at an exit strategy for the near future,” said Shunsuke Kobayashi, an economist at Daiwa Securities Group Inc. “But it didn’t, which was reason for stock market participants to feel relieved.”

In a small sign of progress, the range for Japan’s economic growth outlook for the fiscal year starting in April was revised modestly higher to between 1.3 percent and 1.5 percent, from between 1.2 percent and 1.4 percent forecast in October. It kept its median forecasts for both economic growth and inflation unchanged at 1.4 percent over the same period.

“The outlook overall hasn’t changed much, but the GDP range for fiscal 2018 was slightly revised higher,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “It’s a plus for stocks that the BOJ is more confident about growth” though the yen’s advance could cap share-price gains, she said.

The day’s gains come after U.S. equity benchmarks set fresh historic highs on Monday after the U.S. Congress voted to end the federal government shutdown by passing a temporary spending bill. The S&P 500 Index now trades at about 18 times expected earnings in the next 12 months, while Japan’s Topix traded at about 16 times earnings.

Japanese equities posted their best annual performance since 2013 last year that pushed equity benchmarks to their highest in a quarter century. Tuesday’s gains have pushed the 14-day relative strength indexes for both the Topix and the Nikkei 225 past 70, a level seen as overbought territory.

--With assistance from James Mayger and Tom Redmond

To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@bloomberg.net, Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Teo Chian Wei

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