Japan is Back, Almost

Christian DeHaemer

Posted February 8, 2024

Anyone who was sentient in the 1980s understands the pure force of the Japanese mania at the time.  The country was booming, building great cars and sound systems and searching the world for investments.

You may remember Lee Iacocca

 put out a commercial lamenting that when they put a Japanese name plate on a Chrysler it sold better than the American badged car even though they came from the same factory.  Micheal Keaton put out a movie called Gung Ho about a Japanese business buying up an American car factory.  It was supposed to be a comedy but no one laughed.  It was too close to the truth.

U.S. politicians freaked out when the Japanese firm Mitsubishi Estate bought Rockefeller Center.  Other companies bought Columbia Pictures and Firestone Tire and Rubber.  Books on Japanese management were best sellers. 

The average p/e on the NIKKEI 225 was over 60 and the index represented 40% of the global stock market value.  The mania got so out of hand that at one point a square block in Tokyo was worth more than all of California.

Then it ended.  The Japanese stock market peaked at 38,915 on Dec. 29, 1989.

Christopher Wood in his book, The Bubble Economy, writes:

“In the second half of the 1980s Japan’s financial madness and arrogance centered on a booming stock market and rocketing land prices, which dragged the solid manufacturing economy into a whirlwind of outrageous speculation. Then the boom went spectacularly bust, leaving in its wake a withered stock market, crashing land prices, mountains of bad loans, an economy in recession, and a slew of political and financial scandals, graphically exposing the seedy underbelly of Japan’s feudal finance system.”

Their debt piled up, the banks were gutted, but never died, leaving zombie banks full of bad loans.  Mitsubishi Estate defaulted on Rockfeller center by 1995.

200 Points Away

But here we are 34 years later and the NIKKEI is within 200 points of hitting a new all time high.  In comparison, the Dow Jones Index hit new highs after the 1929 bust within 25 years.  The Nasdaq took 15 years to hit a new high after the dotcom bust.

Today the NIKKEI is at 36,863 yen.  It is up over 40% since January 2023, which makes it one of the best performers globally.

The run should continue. Wage data remains subdued and weaker household spending allows the Bank of Japan to keep its interest rates negative for longer.  There are other tailwinds like the large conglomerate Mitsubishi buying back over $3 billion worth of shares.

Don’t get me wrong, I’m not recommending you pick up Japanese shares.  But it should be a warning for investors everywhere: manias end badly and no one ever went broke taking profits.

All the best,

Christian DeHaemer
Pro Trader Today