The Japanese stock market was booming at the end of the 1980’s. The Nikkei reached a high of 40,000.
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).
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 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.
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.
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.
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.
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.
Japan’s total debt will be at 750 trillion yen at the end of 2013.
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.
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.
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!