^{Photo: nippon.com}

Japanese equities have been on a tear, with the Nikkei 225 and the broader Topix index repeatedly hitting fresh record highs in recent trading sessions. Investors are increasingly optimistic, buoyed by government reforms, robust corporate earnings, and substantial foreign capital inflows.

The Nikkei 225 recently climbed above 34,500 points, while the Topix index topped 2,550, marking a continuation of a rally that has added more than 15% to major benchmarks this year. Analysts highlight that foreign investors have been net buyers for eight consecutive months, injecting over ¥3 trillion ($21 billion) into the Japanese stock market since January.

Drivers Behind the Rally

Several factors are underpinning this bullish momentum. Structural reforms aimed at improving corporate governance, increasing transparency, and promoting shareholder returns are helping to attract both domestic and international capital. Tax incentives for technology and manufacturing investments have further boosted investor confidence.

Japanese companies are also reporting stronger-than-expected earnings. The technology and industrial sectors, in particular, have seen double-digit revenue growth, while exporters are benefiting from recovering demand in the U.S., Europe, and Asia.

Foreign investors, who account for nearly 30% of Tokyo’s market capitalization, have cited Japan’s stable monetary policy and attractive valuations relative to global equities as key reasons for increased inflows.

Lingering Risks

Despite the upbeat sentiment, analysts caution that risks remain. Political uncertainty surrounding upcoming elections and potential shifts in government policy could disrupt the market. A sudden spike in the yen could also weigh on exporters, while volatility in U.S. markets may spill over into Tokyo trading.

“The momentum for Japanese stocks is built on strong fundamentals, but investors should be mindful of external risks, including geopolitical tensions and currency fluctuations,” said one market strategist.

Looking Ahead

Market observers argue that Japan’s rally has room to continue, supported by ongoing reforms, strong corporate earnings, and sustained foreign interest. Analysts project that the Nikkei could approach 36,000 in the coming months if current trends persist, while the Topix may break 2,600.

Investors are watching closely for quarterly earnings reports and economic indicators, including industrial output and export data, to gauge whether the bullish trend has the stamina to continue through the rest of the year.