Episode 2: The Nikkei Stock Average's Origin Story (Post-War Reconstruction Era 🎌 Late 1940s - Early 1950s)
Hello everyone! In the previous episode, "What is the Nikkei Stock Average?," we learned that it's a "yardstick" for measuring the health of the Japanese economy.
Now, let's hop in our time machine and travel to the exciting starting point in history when the Nikkei Stock Average was born!
It All Started from the Ashes... (1945~)
A long, long time ago, Japan had just emerged from a major conflict, World War II (1945). Many cities were in ruins, food and clothing were scarce, and everyone faced a very difficult life.
But even in such times, the Japanese people began to work with incredible energy, determined to rebuild their country. You might have heard of "GHQ" (General Headquarters of the Allied Powers) in your history class. It was a time when the Allied forces, primarily the U.S., were promoting reforms for Japan's new nation-building, such as economic democratization, the dissolution of "zaibatsu" (financial conglomerates), and land reform.
The Stock Exchange Reopens! And the "Yardstick" is Created (1949-1950)
During the war, the "stock market," where company shares were bought and sold, was closed. However, to rebuild the economy, companies needed to be able to raise funds and operate actively.
So, on May 16, 1949, the Tokyo Stock Exchange, the place for stock trading, reopened! 🎉
With the market reopened, everyone thought, "We definitely need a 'yardstick' to understand the overall health of the Japanese economy!" This led to the creation of something that would become the "Nikkei Stock Average," an average of selected company stock prices.
- The actual calculation started on September 7, 1950.
- However, the records were retroactively calculated back to May 16, 1949, when the Tokyo Stock Exchange reopened. So, this date can be considered the historical start of the Nikkei Stock Average!
- Initially, it was called by somewhat complicated names like the "TSE Modified Stock Average." It wasn't until much later that it came to be known as the "Nikkei Average."
- By the way, when calculations began, the stock average was around a little over 100 yen. The value of 100 yen then was completely different from today, but this was the first step in the long journey of Japan's stock prices.
Crisis and Opportunity! The Dodge Deflation and Korean War Boom (1949 - Early 1950s)
The Japanese economy around the time the Nikkei Stock Average was born was like a rollercoaster.
First, in 1949, an American named Mr. Dodge declared, "The Japanese economy is like it's on stilts! It needs to learn to stand on its own feet!" He introduced strict economic stabilization measures (known as the "Dodge Line"). Subsidies were cut, leading to a temporary surge in bankruptcies and unemployment, and the economy cooled down significantly (the "Dodge Deflation"). Stock prices even reportedly fell to around 85 yen at one point. 📉
Just when everyone was worried, "Is the Japanese economy going to be okay...?" the Korean War broke out on the neighboring Korean Peninsula in June 1950.
Due to this war, Japan received a massive number of orders from the U.S. military and others for war-related goods like trucks, blankets, and food supplies. This is called the "Korean War Special Procurement Boom" (special procurement means special demand).
Japanese factories, which had seen reduced work due to the Dodge Deflation, went into full operation thanks to this special procurement boom. The Japanese economy made a sudden V-shaped recovery. 📈 Companies profited, people's lives gradually improved, and this boom became a crucial stepping stone towards the "High-Growth Period" that was to come, a time when Japan would develop tremendously.
Key Events from This Period 📜
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1945
End of World War II. Japan begins to rebuild.
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1949
Dodge Line announced, initiating economic austerity.
May 16: Tokyo Stock Exchange reopens (Nikkei Stock Average is retroactively calculated to this day!). -
1950
June: Korean War begins, bringing "special procurement" boom to Japan.
September 7: Calculation of the "TSE Modified Stock Average" starts. -
1951
San Francisco Peace Treaty signed, paving the way for Japan to regain its sovereignty.
And so, the Nikkei Stock Average was born in a turbulent era for Japan. Overcoming the scars of war, harsh economic policies, and an unexpected procurement boom, the Japanese economy gradually began its strong recovery.
Next up, we'll see how Japan rapidly grew during the "High-Growth Period," fueled by this Korean War boom, and how the Nikkei Stock Average performed! Stay tuned!