Japanese stocks hit pre-bubble record

Japan's benchmark stock average on Thursday broke the record closing high set more than 34 years ago, a milestone in the country's recovery from a popped bubble that left the economy in the doldrums for decades.

- Peter Landers

The Nikkei Stock Average of 225 shares gained 2.2% to close at 39098.68, above the previous record of 38,915.87 set on Dec. 29, 1989. The Nikkei's intraday high Thursday of 39156.97 also set a record.

The previous high came on the last trading day of a decade that saw one of history's great stock and real-estate bubbles.

The milestone was powered by foreign investors who are encouraged by Japan's corporate governance changes and are piling into the country as China's lure fades.

The Nikkei has staged a strong rally since November on optimism that Japan has broken out of its longstanding problem of flat or falling prices, as well as anticipation that the country's tech industry will benefit from global demand in the artificial intelligence era. Pessimism about China has driven investors to redirect money to Japan, analysts said.

Japan's wages and profits are improving, and companies are using their assets more efficiently, said Jonathan Garner, a longtime Asia strategist at Morgan Stanley. "That's working in a virtuous cycle upwards as you exit deflation," he said. "Whereas for China, the exact opposite is happening."

Garner said the reversal of fortunes between Japan and China "is causing some very large reallocations within portfolios right now."