Category Archives: Japan

The 1980’s Japanese Stock Market Bubble

The Japanese stock market was booming at the end of the 1980’s. The Nikkei reached a high of 40,000.

Long term chart of the Nikkei 225
Long term chart of the Nikkei 225

Because of this boom, Japanese companies were among the most expensive companies in the world. This led to a lot of Japanese companies buying up foreign companies. Newsweek came out with this cover in 1987 capturing the zeitgeist of that time. This zeitgeist was later also captured in the movie Die Hard (the company at the center of the movie being Japanese).

Newsweek 1987 Cover Your next boss maybe Japanese
Newsweek 1987 Cover: Your next boss maybe Japanese

Ultimately the bubble burst and Japanese stocks entered a bear market. Stocks crashed almost 90% from the top and the Nikkei reached a bear market low in 2009 during the credit crisis. Japanese stocks are up 350% since then but still almost 50% below the all time high set almost 30 years ago. Japanese stocks to this day have not yet recovered.

One other way that shows how big this bubble was is how large the market capitalisation of Japanese stocks was as a percentage of global stock market capitalisation.

Japan market capitalisation as a percentage of global market capitalisation
Japan market capitalisation as a percentage of global market capitalisation

Is the performance of Japanese bank stocks in a low interest rate environment an omen for European bank stocks?

Japan has been experiencing very low interest rates for more than 20 years now. The yield on 10 year Japanese bonds first dropped below 2% in 1997 and has since then steadily trended lower over the years. In 2016 these bonds first went in to negative territory, meaning that the interest rate dropped below 0%. Currently Japanese 10 year bonds have been at or below 0% for almost 4 years now.

Long term chart of 10 year Japanese government bonds
Long term chart of 10 year Japanese government bonds

The performance of Japanese bank stocks has been horrible over that same period to say the least. The index is at the lowest point in its existence.

Long term chart of Tokyo Stock Exchange (TOPIX) Banks Index
Long term chart of Tokyo Stock Exchange (TOPIX) Banks Index

The ECB has kept interest rates below 0% since 2014. In this period yields on most government bonds of Eurozone countries have steadily declined below zero. Countries like Germany and the Netherlands even have their whole yield curve below zero.

negative German yield curve
Chart showing negative German yield curve

So the question arises. Does the performance of Japanese banks show what future holds for the performance of European bank stocks? Lately, European banking stocks hit their lowest price in the last 30 years. Wiping out all gains made since the ’80’s.

STOXX Europe 600 Banks index (SX7E) long term chart
STOXX Europe 600 Banks index (SX7E) long term chart

Further reading: Bloomberg Opinion. Via Twitter

Japan’s Huge Debt

Japan is the country in the world with the highest government debt to GDP ratio. There is a lot of talk lately about Japan going under because of it’s enormous debtload and the inflation-generating policies of Prime Minister Abe. So I decided to check the numbers out from the Japanese Ministry of Finance.

Report found here [PDF]

Japan’s total debt will be at 750 trillion yen at the end of 2013.

Japan total debt

Japan will be for 46% (42 trillion yen) dependable on the issue of new government bonds for its budget this year. Half of the money raised with the issue of new bonds (22 trillion yen) will go to the national debt service. The national debt service includes the repayment of previous government bonds and the interest on those bonds.

Japans government bonds debt service percentage of budget

Japan projects to pay 10 trillion yen in interest this year on their outstanding bonds. That is roughly 11% of the total Japanese government budget.

Japan paid interest on japan government bonds

These are some pretty interesting statistics in my opinion. Because the Japanese government has to pay a very low interest rate on their bonds it all works out at the moment. One can only imagine what will happen when these rates will go up. Taxes will probably have to go up in the future to pay for all this debt.

Japan will certainly be a market to follow in the future!