A historical perspective of the NIKKEI 225

After the collapse of the Tokyo Stock Exchange in October 2008 inline with the collapse of other share-markets worldwide, it has been slowly recovering since last March. In June the NIKKEI 225 broke the 10,000 points barrier and after a dip in July, it hasn’t closed below 10,200 points in August.

There is no doubt the revitalisation is fueled by the increase in Exports reported as part of the National Accounts in early August, as well as improvements in sale figures announced by large Japanese corporations such as Mitsubishi and Toyota. Investors are expected to tune down trading until after the elections on the 30th of August. The DPJ opposition party is expected to win by a landslide.

Given the recent press coverage on the performance of the Tokyo Stock Exchange, it is useful to place it in a historic perspective. Below is a chart of the NIKKEI 225 since the early 1980s. Most notable is the historic record of just under 39,000 points in 1989. It took Japan only six years to quadruple the value of its stock exchange. We now know the share-market was hugely overvalued and did not represent in the least, the true value of the market at the time.

Even with the recession in the 1990s, the NIKKEI 225 hovered between 15,000 and 20,000 points. Only after the dot com crash followed by the 911 attacks in the US did the index dive below 10,000 points.

The message to take away is that although the NIKKEI 225 is taking steps to a recovery, it is effectively still at the level of 1984. The Heisei recession has effectively wiped 25 years of economic growth off the table.

Tags: Elections, Heisei recession, Historic Perspective, NIKKEI 225, Tokyo Stock Exchange