Japan’s benchmark stock barometer has closed at its highest level in 30 years, boosted by a softer yen, US stimulus hopes and a “short squeeze” sparked by investors trimming their bets against the market.

The broad Topix index rose 1.8 per cent on Monday to 1,924, surpassing a level traders call the “iron coffin lid”. It marked the highest close since June 1991 — an unsettled period of market history when Japan’s economy was reverberating from the collapse of its late 1980s property and stock bubble.

The day’s trading also produced further advances for the much narrower Nikkei 225 — an index that ascribes a lower weighting to Japan’s ailing bank sector, and whose greater focus on exporters has historically meant that it has performed more strongly when the yen has weakened against the US dollar. The Nikkei rallied 2.1 per cent to close at 29,389 — its highest close since August 1990.

Line chart of Topix index showing Japanese stocks climb to highest level since 1991

Tokyo dealers said that promising signals on the US stimulus package had prompted a wave of short-covering by hedge funds and by Japanese retail investors who had amassed bets against the Tokyo market through highly leveraged investment products that involve taking on greater risks to magnify potential returns.

Takeo Kamai, head of execution services at CLSA in Tokyo, said that Monday’s rally did not look like something driven by a build-up of significant new long positions, but that Japanese equities were enjoying the tailwind of a dollar yen rate in the mid ¥105 range — slightly weaker than most companies have assumed in their forecasts and a boon for earnings.

“I think it is logical to say that the Nikkei is heading to 30,000 but I don’t think there is a conviction that this is a Japan specific rally,” said Kamai, who added that while “Japan is lacking a domestic catalyst” it tends to get a boost from strength elsewhere such as in the US.

Other observers said that while the Topix’s breaking of the 1,900 mark was a moment to relish, it did not appear supported by fundamentals.

One of the big investment themes of recent years has been an unprecedented surge in tourist arrivals to Japan — a trend that was supposed to have risen to even greater heights around the postponed 2020 Olympics.

Despite the organisers’ insistence that the games will be held this year, precautions related to the pandemic mean they are likely to do so with a minimal influx of visitors from overseas and only a modest impact on consumer spending.

Over the past two decades, the Topix, which tracks the 2,191 stocks on the TSE’s first section, has experienced two big bull-runs — the first in 2007 and another in 2018. On neither occasion was it able to rupture the 1,900 level, creating the dealing room myth that it might never be broken.