Japan’s Stock Market Blossomed To Its Highest Level In Over 30 Years

Japan’s Stock Market Blossomed To Its Highest Level In Over 30 Years
Paul Allison, CFA

about 2 months ago2 mins

What’s going on here?

Blossom season came early for Japan, with the country’s biggest stock market breaking a 30-year-old record on Wednesday.

What does this mean?

China had overshadowed most of the world’s heavy hitters, save for the US, for the last two decades. But the world’s second-biggest economy still hasn’t recovered its balance after being knocked off-course during the pandemic. Plus, with prices on the descent, the country’s at a higher risk of seeing corporate and personal bankruptcies – two surefire ways to derail an economic recovery. But investors didn’t need to look far to find a promising replacement: with a flourishing export industry, Japanese outlooks are only getting better. So while Chinese stock markets are hanging near their 2020 lows, Japan’s Nikkei index has reached a height not seen in 34 years.

Nikkei 225
Source: Google Finance

Why should I care?

For markets: You don’t need 99 problems when you’ve got this one.

Deflation is a tough itch to scratch. When prices are rising, shoppers tick off their shopping list sooner in case prices are even higher later. But when they’re on the slope, shoppers keep their wallets shut, waiting for a bigger bargain. The same goes for companies looking to reinvest in themselves. So when it’s getting easier to afford a wishlist, folk and businesses are less likely to rely on cheap loans to fund their spending – and that diminishing borrowing and spending can kick off a nasty downward spiral for a country’s economy.

Zooming out: Japan’s new dawn.

Japan took two whole decades to shake off deflation. After twenty years of ever-shrinking prices, Japanese shoppers are practically programmed to hold back. But if the country’s newfound inflation sticks around, they’ll slowly warm up to more spend-happy ways. That matters: the more money floats around the economy, the more likely Japanese stocks are to hold their own.

Japan inflation
Source: Nikkei Asia
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