Think back to the end of 1989. "Like a Prayer," "Love Shack," and Public Enemy's "Fight the Power" topped year-end singles lists. Kids worldwide were sinking into post-Christmas Gameboy-comas. The Simpsons premiered. And twenty years ago yesterday, Japan's Nikkei hit its peak of 38,957. At the time, the Nikkei had nowhere to go but up.
It now trades for about a quarter of that peak figure.
A 73% decline is a sobering number (imagine the S&P 500 trading at 425). It gets bleaker as you dig into the history of the collapse: in Tokyo's Ginza district in 1989, choice properties were selling for $93,000 per square foot. Fifteen years later, prime "A" property in Tokyo went for less than 1% of its peak value. Starting to sound familiar, isn't it?
The widespread optimism and speculation that the U.S. is now recovering from was there, too. As Tetsuo Sugiura, chief economist at Mizuho Research Institute recalls, "At the time [in 1989] there was a kind of irrational exuberance among the Japanese. They tended to think the economy would increase forever and even surpass the U.S." Analysts were expecting the Nikkei to hit 100,000.
Twenty years of hindsight can make for a lot of clarity. Japan's stock market has been through two decades of sideways movement, punctuated by gut-wrenching dips every couple years. (The Nikkei 225 hit a 26-year low in October 2008.)
Japan's bubble of the late 1980s didn't deflate overnight. The "Lost Decade" (a popular Japanese term for the 1990's) wasn't the result of a single catastrophic event; it took that long for the easy credit that had inflated the real estate bubble to resolve.
"Those who cannot remember the past are condemned to repeat it." Even for those of us that only invest in U.S. markets, the progress of the Japanese, Korean and other Asian economies may be the best "crystal ball" we have. How closely are you following those markets to avoid repeating their mistakes?
The editor of Elliott Wave International's monthly Asian-Pacific Financial Forecast Mark Galasiewski lived in Japan through most of the 1990s, and knows what an extended bear market looks like. Get his latest insights now, risk-free. Find out more here.