The Nikkei reaches its highest levels of 1989

The Nikkei, Japan’s main stock market index, recently crossed the symbolic threshold of 36,000 points. It took more than thirty years to reclaim its historical highs from the late 1980s. For investors who bought at the peaks, it’s the hope of finally being able to sell at break-even.

Nikkei Stock Market, a Long Bear Market of Over 30 Years

The 1980s euphoria propelled the Nikkei to very high levels, disconnected from the economic fundamentals. The index increased fivefold over the decade, fueled by speculative fever and an influx of cheap credit. But in 1990, the bubble burst and the index began its descent into hell. For over thirty years, the Nikkei has stagnated or fallen, despite some short-lived rebounds like in 2000.

This catastrophic performance is due to the bursting of the speculative bubble but also to the prolonged stagnation of the Japanese economy and finance, drained of its substance by years of speculation. Investors turn away from stocks, and the Nikkei index plummets to a floor of 7,600 points in 2009. After such a massive stock market crash, there are few historic investors who hold on to their shares.

A Hope for Historic Investors

However, since the 2009 low, the Nikkei has begun a slow recovery, even though the fateful threshold of 36,000 points seemed unattainable. But in 2022 and 2023, the index suddenly accelerates and crosses this mythical barrier in January 2024. Several finance factors explain this spectacular rebound:

• The Bank of Japan’s still very accommodating monetary policy, which is massively injecting liquidity into the system.
• The gradual improvement in the Japanese economic situation since the early 2010s.
• The appetite for risk among investors in a context of low-interest rates.

When inflation is taken into account, the current 36,000 points in the stock market don’t really compensate for the nearly 40,000 points of 1989. But for the most patient investors, it’s a relief after decades of waiting.

It remains to be seen if the Nikkei will continue on its upward trajectory or if this episode will be just another flash in the pan. After such a long bear market, it would be understandable if historic investors locked in their gains rather than risking further setbacks.

By breaking through the symbolic threshold of 36,000 points, the Nikkei of the Japanese stock market completes a bearish cycle of more than thirty years, following the burst of the speculative bubble of the 1980s. For investors who experienced this period of euphoria, the return to historical highs revives the hope of being able to sell at break-even after decades in the red.