Episode 11: To New Horizons? Nikkei Surpasses Bubble-Era High! And the Future is... (2023-Present) 📈Outlook
Last time, we discussed the "Corona Shock," an unprecedented pandemic that engulfed the world, and the significant changes it brought to our economy and society. Stock prices plummeted temporarily but then showed a surprising recovery due to large-scale economic measures.
Now, we've reached the final chapter of our journey tracing the history of the Nikkei Stock Average! As Japan works to overcome the COVID-19 pandemic, the Nikkei has finally set a historic record. Let's consider together what the recent movements signify and what the future holds for the Japanese economy.
The Post-Corona World and Japan's "New Normal" Economy (Circa 2021-2022)
As COVID-19 vaccines became more widespread, economic activities gradually resumed worldwide. However, the virus didn't completely disappear, and an era of "living with COVID" began.
Meanwhile, the global economy faced new challenges:
- Global Inflation: Prolonged supply chain disruptions, soaring energy and food prices (partly due to events like the war in Ukraine from 2022), led to significant global inflation.
- Shift to Monetary Tightening: Central banks in many countries, including the U.S., pivoted from large-scale monetary easing during the pandemic to "monetary tightening" (raising interest rates) to curb inflation.
In Japan, prices also began to rise gradually, making an escape from long-term "deflation" seem plausible. However, as inflation wasn't as acute as in other countries, the Bank of Japan continued its monetary easing政策 for a while, a somewhat different approach from other nations.
Nikkei Finally Rewrites History! (2023-2024) 🚀
Amidst this global situation, Japan's stock market began to show a strong rally from 2023. And then, history was made!
On February 22, 2024, the Nikkei Stock Average closing price surpassed its previous all-time high (38,915.87 yen) set during the peak of the bubble economy on December 29, 1989, for the first time in about 34 years! 🎉 It subsequently even exceeded the 40,000 yen mark at times. This news thrilled Japan.
🤔 Why Did Stock Prices Rise So Much? The Reasons... 🤔
- Resilience of Japanese Companies 💪: Overcoming the pandemic, many Japanese companies showed strong earnings and growth potential.
- Keen Interest from Foreign Investors 👀: Believing Japanese stocks were undervalued compared to other countries and had further growth potential, foreign investors began buying Japanese stocks extensively.
- TSE's "Push" for Better Governance 📣: The Tokyo Stock Exchange urged companies with a PBR (Price-to-Book Ratio) below 1 to make efforts to improve corporate value for shareholders. In response, more companies engaged in share buybacks and increased dividends.
- Boost from a Weaker Yen 💨: The depreciation of the yen also benefited Japanese export-oriented companies by increasing their repatriated earnings.
- Expectations of Escaping Deflation ☀️: A sense of anticipation spread in the market that Japan might finally be able to break free from its long deflationary tunnel, as prices and wages gradually began to rise.
Incidentally, many experts believe this stock market rally is different from the bubble economy era, as it's supported by actual corporate earnings growth, not just excessive speculation.
But Challenges Remain Abundant? The Future of Japan's Economy 😟
While the Nikkei Stock Average reaching a new all-time high brought bright news, it doesn't mean all of Japan's major economic challenges have been resolved.
Major Challenges Japan Faces Moving Forward
- Will Wages Rise Sustainably? 👛: While prices are rising, a crucial point for future economic recovery is whether everyone's wages (real wages) will rise significantly and sustainably. High wage hikes continued in 2024 and 2025, but their spread to small and medium-sized enterprises is key.
- Declining Birthrate and Aging Population 👶👵: Japan faces one of the world's most advanced declining birthrates and aging populations. This leads to issues like a shrinking workforce (labor shortages) and increasing social security costs (pensions, healthcare).
- What About the National Debt? 💰: Japan carries a large national debt (fiscal deficit). Government spending also increased due to COVID-19 measures, so how to reduce this debt remains a major challenge.
- Has the Economy Truly Become "Strong"? 💪: Whether Japan can overcome "structural issues" like resistance to change and a lack of new challenges, and transform into an economy capable of sustained, robust growth is being tested.
What Will the Future Hold? Three Key Points for Japan's Economy and the Nikkei 🚀
No one can predict the future دقیقًا for the Nikkei Stock Average or the Japanese economy. However, paying attention to these points might offer some clues:
Three Keys to Unlocking the Future
- Global Economic Health 🌍: The Japanese economy is deeply connected to global economic trends, especially in the U.S. and China. A healthy global economy benefits Japan, and vice versa. International conflicts and resource price movements also warrant caution.
- The Bank of Japan's Next Move 🏦: In March 2024, the Bank of Japan ended its long-standing negative interest rate policy, taking a step towards "normalizing" monetary policy. The pace of future interest rate hikes and their impact on the economy and mortgage rates are closely watched.
- Japan's New Strengths! 🤖: How well Japanese companies and society can leverage new technologies like AI (Artificial Intelligence) and DX (Digital Transformation) to improve productivity and create new services will be key to growth. The government is also trying to promote these areas under its "New Form of Capitalism" initiative. Furthermore, the new NISA system, launched in 2024, is expected to encourage more individual investment.
Our journey tracing the history of the Nikkei Stock Average now comes to a close for now. From the post-war turmoil to high economic growth, oil shocks, the bubble and its collapse, the lost decades, and then the Corona shock and the recent historic highs... it's truly been a rollercoaster ride.
Stock prices, like an economic thermometer, have reflected Japan's vitality at different times, as well as its hopes and anxieties for the future. The Nikkei Stock Average will continue to move in tandem with Japan's future. Perhaps you, too, will find it interesting to occasionally check the Nikkei's movements in the news and ponder the current state of Japan's economy and where it might be heading!