The Nikkei 225 broke its 1989 all-time record in February 2024 — 35 years after the bubble. Toyota, Sony, SoftBank, Tokyo Electron dominate. Key index to understand JPY carry trade and Japan's exit from 30 years of deflation.
December 29, 1989, the Nikkei 225 closed at 38,957 points — an absolute record. It was the peak of the "Japanese bubble", when Tokyo real estate was theoretically worth more than all US real estate combined. Then everything collapsed.
For the next 30 years, Japan experienced its "lost decade" (which lasted three): persistent deflation, declining demographics, zero rates from the Bank of Japan, and a Nikkei that couldn't recover. The absolute low was reached in March 2009 at 7,055 points (-82 % from 1989).
February 2024: the Nikkei finally crossed 38,957 points, 35 years later. In March 2024, it exceeded 40,000 points for the first time. In 2026, the index oscillates between 42,000 and 48,000 points.
Why this comeback? Several converging factors:
Important specificity: the Nikkei 225 is a price-weighted index (weighted by stock price), like the Dow Jones US. This is very different from S&P 500, DAX, or CAC 40 which are weighted by market cap. Consequence: a very expensive stock weighs much more than a popular stock with low unit price.
Nikkei 225 top 10 by weight in April 2026:
Sectors represented: - Industrial (Toyota, Sony, Mitsubishi, Hitachi): ~25 % - Tech / Semiconductors (Tokyo Electron, Advantest, Renesas): ~22 % - Consumer (Fast Retailing, Toyota Industries, Sony): ~18 % - Finance (Mitsubishi UFJ, SMFG, Tokio Marine): ~12 % - Pharma + Healthcare (Takeda, Daiichi Sankyo, Olympus): ~8 % - Telecom (NTT, KDDI, SoftBank Corp): ~5 %
Understanding the Nikkei 225 means understanding Bank of Japan (BoJ) monetary policy. For 25 years, the BoJ kept policy rates at 0 % or in negative territory (-0.1 % between 2016 and 2024). This specificity has two major consequences:
1. JPY carry trade — borrowing in yen at 0 %, converting to USD/EUR/MXN, and buying higher-yielding assets has been hedge funds' favorite strategy for 30 years. Estimated volume: several trillion dollars. When the BoJ raises rates (March 2024: +0.1 %, January 2025: +0.25 %), this carry trade unwinds brutally → massive foreign asset sales → local crashes. The August 2024 mini global crash (Nikkei -12 % in one day on August 5) is a direct illustration.
2. Structural yen weakness — low rates + deflation = weak yen. USD/JPY at 105 in 2020, 150-160 in 2024-2026. This weakness: - Boosts Japanese export profits (Toyota earns more yen on each car sold abroad) - Attracts foreign investors who see Japanese stocks "discounted" in USD - Increases imported inflation (energy, commodities) → pushes BoJ to normalize
A complex circle: if BoJ normalizes too fast, carry trade crashes. If not enough, yen keeps collapsing and inflation runs hot. Kazuo Ueda, governor since 2023, navigates this dilemma with very gradual normalization.
Effect on Nikkei: generally, dovish BoJ + weak yen = bullish Nikkei (export boost). Hawkish BoJ + strong yen = bearish Nikkei (reduces export profits). So monitoring BoJ announcements every 6-8 weeks is crucial for Japan investors.
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