Japan's Nikkei share average reached a fresh 24-year peak on Friday as it headed for its best week since March 2022, driven both by receding bets on an early exit from the Bank of Japan's stimulus and sheer momentum as foreign investors returned.

The Nikkei entered the midday recess up 1.06% at 35,422.95, after shooting up as much as 2.25% shortly after the open to reach 35,839.65 for the first time since February 1990.

For the week, the index has rallied 6.13%.

Technical indicators were flashing warning signs, however, with one such measure - the relative strength index, or RSI - rising to 73.63 for the Nikkei. Readings above 70 indicate an overheated market.

Nikkei volatility has spiked over the past two days to reach the highest level since Oct. 31, when the BOJ unexpectedly tweaked policy to allow bond yields to rise more.

"It wouldn't be unusual to see a retracement at any moment of the steepest part of this rally," said Nomura Securities strategist Maki Sawada, adding that she had expected the Nikkei to decline at Friday's open.

"We're also heading into the weekend, so it's a ripe environment for some short-term profit taking."

The rally has been supported by receding bets for an end to the BOJ's negative rate policy at its Jan. 22-23 meeting, following a devastating New Year's Day quake on the Noto peninsula, northwest of Tokyo.

Wages data this week has given further incentive for the central bank to hold fire on any hawkish shift.

At the same time, finance ministry data on Friday showed foreign investors bought a net 296.2 billion yen ($2.04 billion) of Japanese equities in the week to Jan. 6, following two weeks as net sellers.

For the year, the Nikkei is up 5.85%, the only major global stock index to post gains other than the U.S. S&P 500, which is up 0.21%, and the Dow, which is 0.06% higher. Britain's FTSE is down 1.98% and Hong Kong's Hang Seng has tumbled 4.14%.

"Foreign investors think the Japanese market is relatively better than other markets: it is not as extended as U.S. markets, and the economy is better than Europe or China," said Shinji Abe, an equity strategist at Daiwa Securities.

"Given the current strong momentum, the Nikkei can reach above 36,000 or even get close to 37,000 in the near term." ($1 = 145.0800 yen) (Reporting by Kevin Buckland; Editing by Subhranshu Sahu)


Reuters