The Nikkei has continued its recent strong streak, recording its highest intraday level since January at 17,520 before closing at 17,490.83. Investors turned cautious this morning (November 14th) with a risk-averse appetite before economic data is released next week for Japan.
Mounting expectations that prime minister Shinzo Abe might call an early election and possibly postpone a sales tax hike also had an effect on trading.
The Nikkei commenced a strong streak on October 31st, after investors cheered the Bank of Japan's surprise easing and the Government Pension Investment Fund's decision to increase its allocation to Japanese equities.
Since then, investors have lapped up shares this week on reports that Abe is preparing to delay a second rise in the sales tax in an attempt to energise Japan's economic recovery, which has turned sluggish of late.
The Nikkei has soared 11 per cent over the course of November, with the benchmark gaining 2.6 per cent this week alone.
However, market investors are now appearing cautious about ploughing more cash into the Nikkei for fears that it could become seen as overheated.
"Short-term foreign investors were seen the main buyers, and they mostly bought index futures," Takatoshi Itoshima, chief portfolio manager at Commons Asset Management, told Reuters. "The pace of the rise is too fast – it can trigger decent profit-taking any minute."
Investors will soon know whether the prime minister will proceed with the sales tax hike to ten per cent from eight per cent in October next year, with Abe set to examine economic data early next week.
They will also undoubtedly be keeping an eye on the release of Japan's gross domestic product data for the July to September quarter, set to be released on Monday (November 17th).
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