The Japanese Stock Market and the 'Lost 30 Years'
It's easy to assume that once a stock index hits a record high, it will eventually surpass it again someday. Yet in Japan, that 'someday' took a full 34 years. What lesson does this give investors?
The 1989 peak, and 34 years of silence
Japan's flagship stock index, the Nikkei 225, recorded an all-time high of 38,915.87 on December 29, 1989. At the time Japan was at the height of its 'bubble economy,' with real estate and stock prices soaring to no end.
But right afterward the bubble burst and prices plunged, and the Japanese market failed to recover for a long time. The Nikkei 225 surpassed its 1989 peak again only in February 2024. That's about 34 years.
This period is often called the 'Lost 30 Years.' It took a full generation just for the index to recover its peak.
The 34 years is based on the 'nominal index.' Some analyses find that recovery would have come somewhat sooner if dividends had been reinvested. Even so, the fact that it was a very long drawdown/stagnation period does not change.
What's the difference between the Nikkei 225 and TOPIX
There are two indexes that come up often when looking at the Japanese market.
- Nikkei 225 — holds 225 companies that represent Japan, in a 'price-weighted' method. Like the U.S. Dow Jones, stocks with high share prices have a large influence.
- TOPIX (Tokyo Stock Price Index) — holds a broad range of stocks listed on the Tokyo Stock Exchange by 'market-cap weight.' It can be seen as representing the whole market better.
For reference, TOPIX also hit its peak (2,881.37) on December 29, 1989. Both indexes peaked at the height of the bubble and then underperformed for a long time.
The lesson this history gives
Japan's experience teaches two things that are very important in investing.
First, the belief that 'an index will surely recover its prior peak someday' is not always realized quickly. Depending on the country and the period, recovery can take decades. Especially if you buy expensive at the height of a bubble, you may have to endure a long time until recovery.
Second, this is why 'diversification' matters. Had you piled everything into one country, one market, a Japanese investor would have suffered for more than 30 years. Had you spread across multiple countries and assets, the shock would have been less.
This isn't about being pessimistic on Japan; it's about not hiding the fact that any market can have a long drawdown period. It's welcome news that the Japanese market recently surpassed its peak, but we must also remember the long silence behind it.
常见问题
Q. Can one market really underperform for over 30 years, like Japan?
It actually happened historically. That's why applying the saying 'stock prices always recover with time' directly to one particular country is dangerous. Diversifying across multiple countries and assets and investing with money you can leave for a long time is the way to reduce this kind of risk.
Q. Is it right to watch the Nikkei 225 or TOPIX?
It depends on your purpose. The Nikkei 225 appears often in the news and is symbolic, but the one that represents the whole market more evenly is the market-cap-weighted TOPIX. Watching both lets you understand the Japanese market in a more three-dimensional way.
📋 结果基于历史数据计算,过去的收益不代表未来的收益。
📋 本服务旨在帮助理解投资、供教育之用,并非投资建议。