– What happened in Japan in late 1980s that NIKKEI has still not recovered from the fall?


– What happened in Japan in late 1980s that NIKKEI has still not recovered from the fall?

In: 4

It’s more “What made the NIKKEI become so overvalued in the 1980s”.

In the late 80s the NIKKEI was a pure bubble economy with overheated economics and really easy credit, investment was rampant with the expectation that tomorrow would see even better returns. It was a house of cards.

When it crashed people’s confidence in investing in Japan evaporated, by the time the markets stabilised and international investment could be seen other Asian markets were now attractive too.

Simply put the NIKKEI probably won’t see that valuation again as it’s value then wasn’t rooted in reality.

The Reagan Administration imposed a 100% tariff on Japanese imports in 1987. The Japanese were accused to “dumping” goods on the U.S. economy (which they definitely were) to the point of impacting U.S. domestic goods production and exports. Soon after, a trade agreement was made between Japan and the U.S. which effectively prevented Japan from dumping goods on the U.S., but this also had the effect of significantly shrinking the Japanese economy.

Another thing to note is that the nominal peak of most stock indices is eventually going to be eclipsed even in ordinary times just due to inflation and population growth. Higher nominal prices and more people means higher valuations for companies even if they’re not really doing anything differently.

However, Japan since the late 80s has had both very low inflation (including periodic bouts of deflation) and a flat or even declining population. This makes it a lot harder to pump the market back to where it was during the peak of what u/tacetabbad0n points out was a bubble.