Nikkei 225 surges toward 72,000: record growth amid yen falling to 40-year low
Japan's stock market continues to show impressive momentum. On Monday, the Nikkei 225 index updated its historical high, breaking through the 72,000-point mark for the first time in its 76-year history. Trading closed at 72,353.96, up 1.55% from the previous day, with an intraday peak reaching 72,831 points. The broader Topix index also showed steady growth, gaining 1.24% and settling at 4,095.05.
This powerful rally added more than 25.74 trillion yen (about $156 billion) to the index's market capitalization. The positive sentiment spread to other Asian markets: South Korea's KOSPI rose by 0.7%, and China's SSE Composite Index climbed by 1.78%. Markets were supported by easing geopolitical tensions — productive negotiations between the U.S. and Iran in Switzerland raise hopes for de-escalation of the conflict, despite tough statements from the U.S. administration.
Yen Under Pressure: Record Interventions Not Helping
The main driver of Japan's stock rally remains the weakening of the national currency. The yen's exchange rate fell to 161.7 per dollar, approaching the critical level of 161.96. A break of this mark would be a 40-year low for the Japanese currency, putting enormous pressure on financial authorities.
Tokyo has already taken unprecedented measures to support the yen. From the end of April to the end of May, a record 11.73 trillion yen ($73.6 billion) was spent on currency interventions. However, the effect proved temporary. Notably, Japanese investors simultaneously reduced purchases of foreign securities by $75.6 billion — an amount almost matching the volume of the latest intervention, indicating a complex game of capital.
The Bank of Japan has tightened monetary policy, raising the key interest rate from 0.75% to 1% — a level not seen since 1995. Typically, such steps strengthen the currency, but the yen continues to weaken, remaining one of the most popular currencies for short selling. The market seems not to believe in the central bank's ability to reverse the trend.
My analysis: The current situation is a classic example of a "liquidity trap" and policy desynchronization. Japan's stock market benefits from a weak yen, creating profit inflation for exporters, but for the economy as a whole and the population, this carries serious risks. As long as the U.S. Federal Reserve maintains a hawkish stance, pressure on the yen will persist, and the Nikkei 225 may continue its parabolic growth. However, I advise treating this rally with caution — a reversal of the USD/JPY pair could be extremely sharp and painful for those who entered the market at the peak of euphoria.