Japan’s Nikkei Achieves Its Largest Annual Increase in 10 Years to Conclude 2023

Japan’s Nikkei share average closed out 2023 with its best year in a decade, driven by hopes for improved governance. The index, however, slipped in the final session with no major catalysts to propel it higher. Despite this, the Nikkei managed to rise 28% for the year, marking its most significant annual gain since 2013.

Closing the year at 33,464.17, the Nikkei fell 0.22% on the final trading day. Takehiko Masuzawa, trading head at Phillip Securities Japan, noted that investors engaged in some profit-taking, leading to buying of underperforming stocks and selling of those that had outperformed in previous sessions due to the lack of significant market-moving events.

In November, the Nikkei reached a 33-year high following a call from the Tokyo Stock Exchange to increase capital efficiency. Billionaire investor Warren Buffet’s Berkshire Hathaway also boosting its stakes in local firms helped boost sentiment. Additionally, the index was supported by the yen’s 7% annual decline against the dollar, making it the top-performing index in Asia.

However, the yen’s 5% gain against the dollar in the last month prevented the Nikkei from reaching new highs. According to market players, this currency movement had a limiting effect on the index’s performance.

Kobe Steel emerged as the best-performing stock for the year, nearly tripling its share value. Meanwhile, drug maker Sumitomo Pharma 4506.T experienced the most significant decline, with its shares falling by 53.3%. The drug sector was the only sector among the Tokyo Stock Exchange’s sub-indexes to end the year in the red, losing 1.09%.

Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities, attributed this discrepancy to investors favoring value stocks with higher dividend payouts over growth stocks with higher price-earnings ratios.

On the final trading day, the broader Topix .TOPX rose 0.19% to 2,366.39, supported by a 1.35% gain from Toyota Motor. The index managed to increase by 25% for the year, its best performance since 2013.

Overall, 2023 was an eventful year for Japan’s stock market, with the Nikkei posting significant gains driven by a variety of factors, including currency movements, corporate governance, and investor preferences for certain sectors. As the new year begins, investors will be closely watching to see how these trends continue to shape the market in 2024.

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