December 25, 2013 3:34 am JST

Hopes high for Japan's stock market as Nikkei touches 16,000

Charting the Nikkei's performance over the last 12 months.

TOKYO -- The Nikkei Stock Average soared to 16,000 on Tuesday for the first time since December 2007, reflecting investor optimism about Japan's economic future.

     The Nikkei average closed up 18 points at 15,889, settling at its loftiest perch so far in 2013. A growing number of issues reached new highs for the year as well, including both export-related companies such as Bridgestone and Fanuc and domestic-oriented stocks such as Mitsui Fudosan.

     Trading is typically thin around Christmas, but this year's holiday season is seeing a large volume of trading orders from overseas investors. "There are strong expectations for a further rally, so hedge funds are actively buying Japanese stocks," says Hiromichi Tamura at Nomura Securities.

     With its economy recovering, the U.S. has decided to start scaling back its quantitative monetary easing measures. Because it has also indicated that interest rates will remain low, money is shifting toward risk assets.

     For Japan in particular, "overseas investors are anticipating structural changes such as beating deflation and the end of the strong yen, so they're remaining optimistic," said Naoki Kamiyama at Merrill Lynch Japan Securities.

     This optimism extends to corporate earnings in 2014. Nomura Securities expects an average 20% increase in profit at major Japanese businesses -- a healthier rise than the roughly 15% forecast for Europe and emerging Asian markets and the 6% seen in the U.S. Many market players contend that if the tapering of easing in the U.S. further strengthens the dollar, Japan will reap the benefits.

     Stock markets in the U.S. and Germany are reaching record heights, and an index measuring overall stock movement worldwide hit its highest point in six years on Monday. But if America's easing slowdown seems like it might send more jitters through emerging markets, this rally led by more developed countries may run out of steam.