Asian Paradox: Nikkei 225 Surges Toward 72,000 Amid Yen Collapse to 1986 Lows
The Japanese stock market continues to show impressive momentum, while the national currency is rapidly losing ground. On Monday, the Nikkei 225 index updated its historical high, surpassing the 72,000-point mark for the first time in its 76-year history. It closed at 72,353.96 points, up 1.55% from the previous day, with an intraday peak of 72,831. The broader Topix index also showed steady growth, gaining 1.24% to reach 4,095.05.
Record Market Capitalization Growth
This surge added more than ¥25.74 trillion (about $156 billion) in market capitalization to the Japanese market. A wave of optimism also swept across other Asian markets: South Korea's KOSPI rose by 0.7%, and China's SSE Composite gained 1.78%. Markets were supported by positive signals from the US-Iran talks in Switzerland, where, despite Washington's tough rhetoric, mediators from Qatar and Pakistan noted some progress.
Yen: 40-Year Low Is Close
While stock indices are hitting records, the yen is moving in the opposite direction. The USD/JPY rate dropped to 161.7, approaching the critical level of 161.96. A break of this mark would signal an update to the weakest level for the Japanese currency since 1986.
The decline continues despite unprecedented efforts by authorities. In the period from late April to late May alone, Japan spent a record ¥11.73 trillion ($73.6 billion) on currency interventions. However, data from the Ministry of Finance indicates that these funds essentially offset capital outflows: Japanese investors reduced their purchases of foreign securities by $75.6 billion over the same period.
Even the tightening of monetary policy by the Bank of Japan, which raised the key rate to 1% — a level not seen since 1995 — failed to reverse the trend. Typically, a rate hike strengthens the currency, but in this case, the yen remains under pressure.
My analysis: We are witnessing a classic "Japanese paradox," where a weak national currency acts as a driver for the export-oriented stock market. However, the current dynamics of the yen carry serious risks. Further weakening could trigger a sharp rise in inflation and force the Bank of Japan to take more aggressive actions, which would ultimately hit the stock market. Investors should closely monitor the 161.96 level — its breakout could be a trigger for high volatility.