The Japanese stock market reached new highs again.

The benchmark index of the Japanese stock market, the "Nikkei 225" index, touched a key level of 40,000 points on the just concluded Monday trading day, reaching a historic high. This comes after the Nikkei 225 index reclaimed its historical high from December 1989 on the previous Thursday (February 22), marking another breakthrough in the Japanese stock market. Undoubtedly, today's sharp rise in the Japanese stock market was mainly driven by the increase in semiconductor stocks, which in turn were boosted by expectations of increased demand for artificial intelligence. The Nikkei 225 index rose by 198.41 points at the end of trading on Monday compared to last Friday's close, with an increase of 0.5% to 40,109.23 points. Semiconductor equipment manufacturers Tokyo Electron and Advantest led the gains, with increases of 2.4% and 3.7% respectively. The overall situation in other sectors is more complex. Major stocks such as Fast Retailing Group, the parent company of Uniqlo, and Toyota Motor Corp, experienced declines. At the close of trading on Monday morning, about two-thirds of companies on the Tokyo Stock Exchange main board saw declines in stock prices. AI frenzy coupled with stock market reforms boost the Japanese stock market On Friday, the US stock market rose, with chip maker NVIDIA's market value surpassing $2 trillion. Tomoichiro Kubota, a senior market analyst at Matsui Securities, stated that investors were betting on the continued push of the AI boom to drive semiconductor spending and boost Japanese companies in the semiconductor industry chain. Recently, a Goldman Sachs analyst introduced the concept of "Bushi 7" for the Japanese stock market, including companies such as Toyota Motor, Subaru (auto), Tokyo Electron, Mitsubishi Corp, Advantest, Disco, and Screen Holdings. Four of these companies are in the semiconductor sector. In fact, the semiconductor industry in Japan has always been a modest player compared to its actual strength on a global scale. For example, in the semiconductor equipment sector, top companies like Applied Materials from the US and ASML from the Netherlands lead the industry, with Tokyo Electron being in the second tier behind them, on par with Lam Research. Applied Materials, ASML, and Lam Research are well-known names, while Tokyo Electron's visibility among circle investors seems to be far less than these three. Advantest, a global player in the semiconductor testing sector, is one of the two big players globally alongside Teradyne from the US. Teradyne's market share and technological capabilities are far behind Advantest. Advantest is currently one of the most sought-after companies in the Japanese market, occupying the top spot in terms of trading volume. For example, in the trading session that just ended, Advantest's trading value reached 133.6 billion yen, approximately $8.9 billion. In the field of semiconductor materials, companies like Shin-Etsu Chemical and Sumco dominate their respective sub-sectors. Shin-Etsu Chemical has been a long-term bullish stock, while Sumco has been weak historically but has shown recent strength. Furthermore, the recent upward trend in the Japanese market can be attributed to factors such as corporate governance reforms, a weak yen, and the attraction of international investors through Japan's individual savings accounts (NISA). NISA is a tax-deferred investment plan targeted at small investors. Regarding the question of whether the valuation of the Japanese stock market is too high, Ryuta Otsuka, a strategist at Toyo Securities, believes that with the record profits expected by companies for the fiscal year ending in March 2024, the index "doesn't seem overheated". The average PE ratio of the current Nikkei 225 index constituent stocks is only around 17, while during the peak of the bubble in December 1989, the PE ratio was as high as 60 times. Otsuka stated that the ongoing spring wage negotiations by major companies are "a key event in the near future" and can serve as an indicator of Japan's economic strength. "Investors are expecting a larger increase in wages compared to last year," he added. Regarding the issue of the yen exchange rate, Thomas O'Mahony, Senior Investment Director at Cambridge Associates, stated, "The depreciation of the yen is clearly a tailwind for the Japanese market, mainly through supporting earnings per share expectations." He added, "This could become a major risk for the Japanese market." If the forex market moves in the opposite direction, "the tailwind can turn into a headwind." International investors increasing their holdings in Japanese stocks During this wave of international investors increasing their holdings in the Japanese stock market, industrial sector companies like Kobe Steel (Kobe Steel) are also attracting the attention of international investors. With the assistance of trust banks, Kobe Steel has engaged in dialogues with 70 to 80 foreign investors, mainly from Europe and the US. The large steel manufacturer selects candidates based on their long-term shareholder intentions and holdings of shares in other companies in the same industry. Of course, due to the focus of international investors on ESG principles and the high greenhouse gas emissions of the steel industry, a general affairs manager and corporate social responsibility manager at Kobe Steel stated, "So some investors may refuse negotiations." Meanwhile, electronic product manufacturer Omron has begun discussions with overseas investors they had never contacted before, including sovereign funds from some Middle Eastern countries. Omron President Tsutomu Igaki stated that they have had multiple conversations with them (these sovereign funds). This restarts small meetings between the company's management and securities analysts and overseas investors as clients after an 8-year hiatus. "The interest of investors who are not familiar with the factory automation industry is growing, and we hope to deepen analysts' understanding once again," said Igaki. In November last year, chip manufacturing equipment maker Tokyo Electron established its first overseas investor relations office in New York to increase direct dialogue opportunities with investors. With the growing interest of international investors in semiconductor-related stocks and the increased demand from foreign investors for company visits and meetings, it is expected that the number of meetings for the fiscal year 2023, including Japanese domestic investors, will reach 800, a 30% increase year-on-year. "In Europe and the US, many investors have invested in our competitors without knowing about us," said Junko Takagi, Vice President of Investor Relations at Tokyo Electron. "We are in the process of establishing investor relations."Efforts in this area are still not enough," said Yoshiko Sato, Executive Director of the Japan Investor Relations Association. Overseas investors are more active in investment management than Japanese investors. Sato said, when talking about attracting foreign investors to Japanese companies, "One of the goals is to convert individual companies' medium to long-term investors into stable shareholders."A spokesperson for Mitsubishi UFJ Trust and Banking Corporation said that companies with market capitalization between 300 billion and 500 billion yen (2 billion to 3.3 billion US dollars) have started shifting their focus to overseas investors recently, partially due to the decrease in stable domestic shareholders caused by the cancellation of cross-shareholdings. A survey by Bank of America in February showed that 56% of investors prefer Japanese stocks in the Asia-Pacific region. 29% of respondents expect a return of over 10% for Japanese stocks in the next 12 months, indicating positive outlook. As of the 2022 fiscal year, foreign ownership of Japanese stocks stands at 30.1%, lower than the peak of 31.7% in the 2014 fiscal year, suggesting room for growth. Last year, Goldman Sachs organized an event in Japan for investors including European and American pension funds as well as about 100 listed Japanese companies. Investors introduced their investment and dialogue strategies. The event will be held again this year with new investors.