Rise of the Rising Sun: Japan’s Stock Market Reclaims Its Glory

Japan's stock market is enjoying a remarkable resurgence, with the Nikkei breaking the 37,000-mark for the first time since 1990. 

After years of being the financial equivalent of that one forgotten relative—barely noticed and rarely visited—Japan's market is now the talk of the town. Even Warren Buffett of Wall Street, who’s as savvy with stocks as Indian aunties are with match-making, has gone all in on Japanese stocks. So, if you’ve been sleeping on Japan’s market, you might want to wake up—because it’s staging a comeback bigger than a Bollywood blockbuster!

Even back in the 1980s, Japan was on a roll, with some even predicting it would overtake the United States as the world's leading economic superpower. American corporations were sweating as Japanese tech giants seemed poised to conquer the globe. It won’t be wrong to say that Japan of the 1980s closely mirrored present-day China. 

So what went wrong in the Japanese economic miracle?

As the U.S. started slapping tariffs like stickers on a well-traveled suitcase, Japan's dream of economic domination began to wobble.

Fast forward to the late 1980s, the asset price bubble shook the economy as the "euphoria" of consistent long-term economic growth boosted asset prices in Japan. However, there was a major mismatch between the increase in asset prices and the actual economic fundamentals of the day. Additionally, the Bank of Japan played the part of an overenthusiastic parent, inflating the balloon with easy credit and a generous money supply. By the time the central bank realized they had blown too much air into the economy, it was too late. They tried to deflate it slowly with interest rate hikes, but the balloon burst, sending Japan's stock market and land prices tumbling.

The aftermath? Japan's “lost decade”, where the economy grew at the pace of a tortoise with output never reaching its earlier potential. "Bubbles" are not a unique economic phenomena, but while most countries eventually recover and grow, Japan has spent decades struggling to regain its former glory.

Of late, this crisis has re-entered the public sphere, as China's property sector is wobbling like a giant Jenga tower, and some experts are starting to whisper about a potential "Japanification" scenario, wherein demand collapses under the weight of deflation.

Given China's massive size and influence, any comparison with its little sibling Japan, seems unfair. So, while Japan’s bubble saga serves as a cautionary tale, let’s hope the world has learned its lesson: to keep one eye on the fundamentals and the other on the inevitable popping sound as it’s all fun and games until someone inflates a bubble.