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The Nikkei has scaled new heights
24/10/2025
Both political developments and structural tailwinds are breathing fresh life into the Japanese stock market
Japan’s Nikkei 225 stock index is up by around 25 percent since the start of the year and, at almost 50,000 points, is close to its record high.[1]
The optimism stems from market speculation that Takaichi will launch “Abenomics 2.0.” This term is synonymous with the economic policy of Prime Minister Shinzo Abe, introduced in 2012 when he came to power for the second time.[2]
It is precisely these expectations — namely fiscal stimulus, a supportive monetary policy, and increased pressure for reform — that are currently igniting market hopes. Some experts warn that much of the optimism has already been factored in. But the combination of political stability and a growth-oriented agenda could provide important support for economic development and the markets.
The Japanese stock rally is, however, not solely based on politics and policy momentum. Structural forces are reinforcing the upswing, including the return of foreign investors, corporate governance reforms and near-record stock buybacks by Japanese firms.[3]
Market structure is also an important driver of the current momentum. While tech stocks are becoming increasingly volatile, industrial and financial stocks have pulled the indices up, benefiting from rising yields and the prospect of fiscal support. The broader Topix Index has also risen, buoyed by electronics and banking stocks. Small Caps are also coming more into focus as they are particularly affected by the Tokyo Stock Exchange's call to use capital more efficiently and need to adjust their capital structure accordingly. Therefore, the rally is much broader than the Nikkei-oriented headlines suggest.
“The Bank of Japan's monetary policy remains an important hinge,” says Lucas Brauner, Japan economist at DWS. “After exiting negative interest rate policy, further interest rate hikes are likely, although we currently expect them to be somewhat delayed due to the political transition phase and planned stimulus measures.” These delays should allow the markets sufficient time to absorb fiscal stimulus and soften the transition to higher nominal yields, thereby safeguarding the economic recovery.
The recent stock rally is founded on the appointment of Sanae Takaichi as prime minister, structural tailwinds and a weaker yen. Markets are anticipating a period of political stability and fiscal expansion — an environment that is putting Japan back in the global investment spotlight after years of stagnation. The outlook remains positive, in our view.
Japan's Nikkei and Topix have shown a strong price performance this year
Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 10/22/25
This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. Alternatives are not suitable for all clients.