(Bloomberg) -- A rally in Japanese stocks on Thursday has lifted this year's gain on the Topix index to just over 11%, surpassing the 10.6% return from Taiwan's equity benchmark to become the best-performing share market in Asia.
The Topix index closed above the 2,000 point level for the first time since May 1991, with automakers and lenders contributing the most to the gauge's gains this month. The Topix has seen more than double the returns in 2021 than the MSCI Asia Pacific Index.
“The bad news is slipping away one by one, and what's left is earnings,” said Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management. He points to the “unexpectedly dovish” signals from the Federal Reserve, Japan's decision to lift the coronavirus state of emergency and progress being made on vaccinations among positive boosts, in addition to the recovery in earnings.
Japan is set to end a state of emergency for the Tokyo region on Sunday, having reduced infections without imposing the type of economically damaging restrictions seen in other nations, and with seemingly less damage than in the first state of emergency almost a year ago.
Looking forward, market watchers are focusing on the Bank of Japan's decision due Friday, where the central bank is set to end months of speculation when it announces the results of a policy review set to tweak its asset purchases.
The Fed decision “adds pressure on the BOJ to maintain a very dovish stance,” Nikko Asset Management Chief Global Strategist John Vail said in a note on Thursday.
The BOJ is expected to signal that it will buy fewer exchange-traded funds when stocks are high, while keeping the option to aggressively purchase when needed. The bank is likely to abolish the 6 trillion yen ($55 billion) annual ETF purchase target, the Nikkei reported Thursday.
“Market sentiment feels like it is to the upside for now, but I think we remain hostage to the treasury yields,” said Takeo Kamai, head of execution services at CLSA Securities Japan Co. The yen's “trajectory toward 110 is also a tailwind for the exporters.”
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