Japan’s benchmark stock indexes retreated on Wednesday, extending declines into a second session as investors locked in profits and questioned how high stocks could run after reaching 33-year highs. The Nikkei 225 index fell 0.8%, while the broader TOPIX index shed 0.2%.
The recent rally was driven by strong first-quarter earnings, dovish signals from the Bank of Japan, and an endorsement for Japanese stocks by Warren Buffett. Analysts also cited improved corporate governance measures by the Tokyo Stock Exchange and a weak yen as factors behind the rally.
However, a Reuters poll forecast some consolidation in Japan’s benchmark index this year, with the Nikkei expected to slide 4% from 33-year highs to the 30,000 level by end-2023. Markets are also concerned about a potential U.S. debt default and weakness in China, which is a major export market for Japan.
On the other hand, the Japanese economy benefited from reopening its borders as demand for tourism shot up and supported the country’s services sector. This also saw the economy grow more than expected in the first quarter of 2023, albeit slightly.