Has Japan turned around?
During the ‘80s Japan’s market was booming. Their export-led economy was capitalizing on the growth in world trade, their stock market grew 10-fold from 1974 to 1989, and the market value of the imperial palace in Tokyo was supposedly greater than that of the State of California. Japan, Inc. was considered an economic juggernaut—a model of targeted subsidies and managerial expertise that could dominate any market it chose to.
Then the bubble burst and things went into a tailspin. Even though their economy continue to grow, the stock market fell by half and went into a 20+ year bear market. Last November the Nikkei Average was 80% below the record high it set in December of 1989. Japan’s economy has become a byword for the perils of deflation and economic stagnation.
But if inflation and deflation are primarily monetary phenomena, can monetary intervention cure them? That’s what we’re about to find out. Last Fall Prime Minister Shinzo Abe articulated his economic policy: a regime of monetary expansion and deficit spending dubbed Abenomics. The yen fell by over 25% and the stock market doubled.
Japan’s new intervention is a grand experiment. We will soon see where the experiment leads.
Douglas R. Tengdin, CFA
Chief Investment Officer