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I felt a pang of nostalgia last weekend reading Financial Times Tokyo correspondent Leo Lewis’s ruminations on the remarkable recent rally of Japanese stock prices.
On Feb. 15, the Nikkei 225 stock average soared above 30,000, the first time the benchmark index for Japanese equity markets has crossed that psychologically significant threshold since 1990. As I write, the Nikkei is still hovering at that level, a gain of nearly 100% since last March when the COVID-19 pandemic leapt to Japan. Now some analysts and investors speculate the Nikkei will soon top its all-time intra-day high of 38,957.44, achieved on Dec. 29, 1989 at the peak of Japan’s ‘Bubble Economy.’
Yes, it’s weird to get misty-eyed over the movements of a stock average. But for me the milestone conjures memories of a bygone era. Only days before the Nikkei reached its peak, I started my first real journalism job as the markets correspondent for the Tokyo bureau of the Wall Street Journal—and spent the next three years of my life documenting the Japanese bubble’s spectacular collapse.
The Bubble Era was a surreal moment. Property in downtown Tokyo sold for 350 times the price of equivalent space in Manhattan. Land under the Imperial Palace was said to be worth more than all the real estate in California. Golf club memberships traded for millions of dollars. Japanese companies gobbled up American trophy assets like Rockefeller Center, the Pebble Beach Country Club, and Columbia Pictures. Everyone thought Japan was on its way to becoming the global economy’s No. 1.
Until it all came crashing down.
Lewis recalls one of the period’s most florid characters: Nui Onoue, an obscure Osaka restaurant owner, who claimed a supernatural gift for predicting stock prices by invoking the powers of a magical toad statue. Onoue convinced the mighty Industrial Bank of Japan and a gaggle of other financial firms to lend her billions of dollars, which she used to become the largest individual investor on the Tokyo Stock Exchange. Her subsequent conviction on fraud charges forced two Japanese banks into mergers and came to be seen as a parable of the era’s speculative mania.
Now, as the Nikkei pushes towards a new record, how much have Japan’s economy and markets changed? Is the recovery story real or is a new Japanese bubble emerging?
The answer to that first question is: quite a lot. Veteran Japan market analyst Peter Tasker notes that at the peak of the 1980s bubble, Japan’s stock market was dominated by a handful of mammoth banks, most of which no longer exist as independent entities. Today, Japan’s biggest stocks by market value are relative newcomers including SoftBank, Keyence, and Fast Retailing.
Tasker suggests the answer to the second question is that the recent run-up may have staying power because it can be supported by a compelling narrative that, after three lost decades, Japan’s economy is finally “back.” Tasker traces the roots of that narrative to the election of former Prime Minister Shinzo Abe in 2012, and his new macro-economic framework that called for a combination of government stimulus, ultra-lose monetary policy, and regulatory reform. That framework has helped Japanese companies pare down debts and return to profitability.
Lewis, meanwhile, points out that the psychology of investors in the Japanese market has changed as well. In the wake of the bubble’s collapse, he notes, Japan’s retail investors tended to be “reliable contrarians of prevailing market direction.” They’d sell as the market gained and buy as it declined. But Lewis cites Japanese online brokerages who say that since the pandemic, the ranks of Japanese retail investors have swollen, and investors average age has fallen. Now, he suggests, retail investors are far more likely to keep on buying through a rally.
But that may also mean they dash more frantically for the exit if there is a market correction. Either way, after all those lost decades, Japan’s stock market is worth watching again.
Eastworld is growing! Next week, by popular demand, we’ll move to twice-weekly format, sending newsletters on Tuesday as well as Thursday.
Also, don’t miss this week’s Eastworld Spotlight conversation with author and Lowy Institute senior fellow Richard McGregor, who argues that President Joe Biden’s effort to bolster ‘the Quad’ (which we discussed in this space last week) has a high chance of success.
The COVID-19 pandemic has turbo-charged the digital transformation of the global health care industry and created a bewildering array of new telemedicine ventures to serve the billions of people clamoring for online health care services. But will the new technologies bring better quality care for patients? Join Grady and me Thursday, Mar. 4 at 9 p.m. Beijing time for “The Doctor is Online,” a virtual conversation to ponder “Digital Health in the Post-COVID Era” with co-CEO of Ping An Group Jessica Tan and Executive Vice Chairperson of Apollo Hospitals Enterprise Limited Shobana Kamineni. You can register for the call and find out more here.
More news below.
Clay Chandler
clay.chandler@fortune.com
This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com.
Eastworld news
The compromise
On Wednesday, Australia passed the world’s first ever law that will require digital platforms like Facebook and Google to pay media outlets for linking to their sites. Facebook and Google fought bitterly against the legislation and Facebook even briefly blocked users in Australia from seeing posts from any news outlet on its platform. Facebook restored access to the websites before the vote on Wednesday, after Australian legislators granted a potential exception to Facebook in the law if it can prove its support for Australia’s local media industry. CNBC
‘Complete victory’
Chinese President Xi Jinping declared “complete victory” over rural poverty on Wednesday as state media credited him with lifting 100 million people from poverty since he took power in 2012. Analysts say that China has indeed made huge strides in improving the lives of its most vulnerable but also that China’s statistics shouldn’t be taken at face value. China, for example, counts extreme poverty as subsisting on $2.30 per day, above the $1.90 line the World Bank recommends for lower-income countries but well below the $5.50 benchmark it uses for middle- to high-income countries. South China Morning Post
Short stack
Semiconductor chips are essential components in cars, smartphones, and missiles, and more than half the world's chip manufacturing capacity is in Taiwan and mainland China. To ensure its access to the critical devices and mitigate any potential supply disruptions, the U.S. is accelerating plans to lessen its dependence on China by manufacturing more chips at home. Now, Arizona is emerging as a potential hotspot for chip manufacturing as Asian manufacturers like TSMC, LCY Group, and (potentially) Samsung are adding staff and manufacturing plants in the state. Fortune
Not a coup for China
China’s relative acceptance of Myanmar’s Feb. 1 military coup has been criticized in the West, but China may stand to lose big in military’s takeover of the country. Jailed ex-President Aung San Suu Kyii was a major backer of Chinese investments and infrastructure projects in Myanmar, and Myanmar’s military generals have been far less enthusiastic about Myanmar’s growing reliance on China than the former president. The Atlantic
Vaccine equity
The global campaign for vaccine equity is starting in India. On Wednesday, Ghana received the first vaccine shipment through COVAX, the World Health Organization-backed initiative to promote equitable access to vaccines. The British vaccine maker AstraZeneca originally developed the technology behind the vaccines sent to Ghana, but the doses delivered this week were produced by the Serum Institute of India (SII). The SII expects to play a major role in helping equalize vaccine distribution, pledging to supply COVAX with 240 million doses of the AstraZeneva vaccine in the first half of 2021. Fortune
Coronavirus by countries
Vaccine rollouts are coming to Asia. Countries like Japan, Thailand, and South Korea have been slow to purchase and administer vaccines compared to western counterparts in part because they weren’t suffering from widespread outbreaks at home and had the luxury of waiting to see how safely and effectively the vaccines worked in other countries. But this week, governments in Japan, Australia, Hong Kong, and Malaysia kicked off vaccine campaigns with Chinese and western vaccines, viewing the jabs as the only path towards reopening their borders. Bloomberg
Markets and movers
HKEX – Hong Kong Exchanges & Clearing Ltd. shares plunged nearly 9.3% on Wednesday as the city introduced its first increase to the stamp duty on stock trades since 1993. On Thursday, HKEX shares continued to slide, dropping 1.8%. Fortune
Boyu Capital – The Ant Group investor is raising a new fund worth as much as $6 billion, which would make it one of the region’s largest funds focused on the Chinese market. Reuters
NSE – The National Stock Exchange, India’s largest bourse, shut down due to a network glitch for nearly four hours on Wednesday creating havoc for local traders. Trading firms blasted the exchange for not having a back-up plan and called for investigations to ensure a similar stoppage doesn't happen again. Reuters
Qantas – The Australian airliner is planning to resume the majority of its international routes on Oct. 31, four months later than the company anticipated last year. Fortune
Facebook – The social media giant banned the Myanmar military (Tatmadaw) from its platform on Thursday in the wake of the country’s Feb. 1 military-led coup. New York Times
DiDi – The Chinese ride sharing giant is planning to debut in Europe in the first half of 2021 as it prepares for a Hong Kong IPO later this year. Entering the European market would let Didi expand its global operations from its current base in South America and hedge against China's crackdown of its tech giants at home. Bloomberg
Final figure
70%
China is dominating 5G. This week, vice minister at the Ministry of Industry and Information Technology Liu Liehong said China has now built 718,000 5G base stations, which accounts for 70% of all base stations globally. Places like the U.S. and Europe have been slow to invest in the costly new infrastructure and have resisted advances from Chinese manufacturers like Huawei to build out their networks. Now, more and more countries around the world are planning to build out their own 5G networks, but the likes of the U.S. have a long way to go to catch up with China. Caixin Global
