- Emerging markets and China’s risk premiums over Japan have been narrowed.
- Japan’s stock market is valued much lower than the rest.
- Nikkei is consolidating in a long-term upward trend that has been in place since March 2009
The Japanese stock market has underperformed and languished against the US since the infamous burst of Japan’s property bubble in early 1990 that led to two decades of sticky deflation. Even though, the implementation of “Abenomics” in December 2012; a potent mix of expansionary fiscal and monetary policies had led to an accumulated gain of 150% seen in the Nikkei 225 till the end of 2022, it is still 36% below its all-time high level of 38,957 printed in December 1989 before the bursting of the property bubble from its current level of 28,590 at this time of the writing.
Why is this time different?
Let’s take a trip down memory lane. The underperformance of Japanese equities against the rest of the world since 1990 has been attributed to two main factors; localized demographics where Japan’s birth rate declined faster than the increase in her aging population which led to lower productivity.
Secondly, China’s entry…
