Nikkei 225 and the Lost Decade

Nikkei 225

The postwar rise in Japanese stocks is quite remarkable. The Nikkei Dow Jones Stock Average, patterned after the U.S. Dow Jones Average and containinng 225 stocks, was first published on May 16, 1949. The day marked the reopening of the Tokyo Stock Exchange, which had been officially closed since August 1945. On the opening day, the value of the Nikkei was 176.21 - virtually idential to the U.S. Dow Jones Industrials at that time. By December 1989, the Nikkei soared to nearly 40,000 more than 15 times that of the Dow. Japan's bear market brought the Nikkei below 10,000 following the terrorist attacks in September, 2001, just above the level reached by the American Dow. On February 1, 2002, the Nikkei closed at 9,791, below the Dow for the first time.

However, comparing U.S. and Japanese Dow indexes overstates the extent of the Japanese decline. The gain in the Japanese market measured in DOLLARS far exceeds that measured in YEN. The yen was set at 360 to the dollar 3 weeks before the opening of the Tokyo Stock Exchange - a rate that was to hold for more than 20 years. Since then, the dollar has fallen to about 130 yen. In dollar terms, therefore, the Nikkei climbed to over 100,000 in 1989 and is currently over 30,000, three times its American counterpart, despite the great bear market that has enveloped Japan in the past decade.

Nikkei 225 was 9,522.50 on 29th May 2009.... reminiscent of the lost decade.