The Nikkei Bubble: Can a bear market last for 14 straight years?

The Nikkei Bubble

Can a bear market last for 14 straight years? Well, this is exactly what occurred in Japan, starting in 1991.

After World War II, Japan was devastated-several of its major cities were obliterated and its economy was virtually nonexistent. Due to much effort and hard work, the Japanese economy slowly began to stabilize and recover. Additionally, the United States helped Japan rebuild, and provided capital and military protection, as well. The value of military protection should not be overlooked, as this is usually the highest expense of any government. This benefit allowed the Japanese economy and government run more freely and efficiently.

Factories were quickly built and peasants became factory workers. Middle and upper class men became white collar workers, called salarymen. Salarymen and factory workers were offered lifetime employment. This caused salarymen to have fierce loyalty towards their employers. Most Japanese workers at the time were highly frugal, saving much of what they earned. Many companies merged together to become large industrial and banking conglomerates, called zaibatsu.

The zaibatsu gained their competitive edge by copying and improving Western products and selling them for much cheaper. The cheaper products won Western customers and started to hurt US companies. Tremendous economic growth occurred allowing the zaibatsu to evolve into even larger business alliances, called keiretsu. The keiretsu philosophy was one of cooperation, where all facets of business and government worked hand in hand. As the Japanese stock market soared, the keiretsu purchased each other’s shares.

http://www.stock-market-crash.net/nikkei.htm

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.