Dongfang Stock Index hits a new year-end high in 36 years! Year-end market shows resilience, underpinned by corporate governance reforms that may outperform the Nikkei 225 next year.

The Nikkei 225 index closed at 50339.48 points on the last trading day of 2025, marking a new year-end high for the second consecutive year; the index has risen by 26% for the year, outperforming the TOPIX index for the third consecutive year. In early April of this year, during the aftermath of U.S. President Trump's large-scale tariff increases, the TOPIX index plummeted. However, as trade war concerns eased and the Japanese stock market was relatively undervalued compared to the U.S. and European markets, investors regained interest in the Japanese stock market. Additionally, the continuous weakness of the Japanese yen allowed foreign investors to purchase Japanese assets at a lower cost, further stimulating demand. Expectations for improved profitability of Japanese companies, the economic stimulus plan initiated by the Suga government, and excess global liquidity also contributed to the TOPIX index hitting new highs at the end of the year. At the same time, buying interest has expanded to small-cap stocks, indicating that the attractiveness of the Japanese stock market is growing. Data shows that mid-cap and small-cap stocks in the TOPIX index have risen by 27% and 26% respectively this year, outperforming large-cap stocks with a 21% increase for the first time since 2022. Hideyuki Ishiguro, Chief Strategist at Nomura Asset Management, stated that the new year-end high point for the TOPIX index indicates that the "buying base of the Japanese stock market is expanding." He mentioned that with economic, corporate, and political changes, the trend of valuation repair is intensifying, leading to the expansion of the rising range from AI-related stocks to financial stocks such as banks, domestic demand stocks such as construction and real estate. The Nikkei 225 index is mainly composed of large blue-chip stocks in the technology and export sectors, while the industry distribution of the TOPIX index constituents is more balanced, covering all industries such as finance, consumer goods, and services, as well as more medium and small-sized companies. Leading technology stocks such as Advantest Corporation and SoftBank Group have been the main drivers of the rise in the Japanese stock market in 2025. Advantest's market value exceeded 10 trillion yen for the first time this year, with a year-to-date increase of about 114%. SoftBank Group, a technology giant, has also surged by over 90% this year due to its continued investment in OpenAI, making its stock price a key indicator of market confidence in this private company. Other chip and AI-related stocks, such as Mitsubishi Electric, Hitachi, and Tokyo Electron, have also seen significant gains. Although the Nikkei 225 index has historically outperformed the TOPIX index under the global wave of AI, the recent performance of the TOPIX index has shown more resilience. Hideyuki Ishiguro suggested that the TOPIX index is likely to outperform the Nikkei 225 index in 2026, as revisions to the Corporate Governance Code will encourage companies to utilize cash, further improving price-to-book ratios and prompting buying of a wider range of stocks.