Is It Over Yet? The Japanese Bear Market Lasted Just a Few Weeks, Or Will It?
Dr. Bryan Taylor, Chief Economist, Global Financial Data
Japan just went through the shortest bear market in its history. Or did it?
Japanese markets peaked on July 11, 2024, and hit a bottom on August 5, 2024, a decline lasting less than four weeks. The TOPIX Index declined by 23.97% and the Nikkei 225 index declined by 25.50%. Before this bear market, the shortest bear market in Japanese history had occurred in 1987 when the Nikkei declined by 21.05% for almost a month between October 14, 1987 and November 11, 1987. The TOPIX declined by 25.15% between June 11, 1987 and January 4, 1988. Since the August 2024 bottom, the Japanese stock market has bounced back about 15%, recovering about half of its losses.
The Japanese stock market had been on a tear prior to this decline, with the Nikkei 225 rising 155% from the Covid low on March 20, 2020. Since the bottom in October 2008, the Nikkei had risen 489%. The Japanese stock market was clearly overvalued as a result of weakness in the Japanese Yen, and growth in the Japanese economy. However, the market became overextended, and fears over a global recession sent the Japanese stock market into a tailspin on August 5 sending it down over 12%, the largest one-day decline in Japan since the stock market crash in 1987.
But is the bear market over with in Japan? Japan went through five bear markets between 1989 and 2008 declining over 81% during those 19 years. Both the Nikkei 225 Average and the TOPIX index had just hit new highs in 2024 that exceeded the 1989 market top, a 35-year journey from the top in 1989 to the bottom in 2008 and the new top in 2024. But could further declines be in the works for Japan?
Japan has achieved its spectacular comeback by keeping interest rates negative for the past decade. The Bank of Japan has bought up trillions of yen in government bonds to keep interest rates low, but Japan can no longer keep interest rates negative or probably even below 1%. Growth remains low and the population is shrinking. Could Japan be forming a double top and face another multi-year decline? Only time will tell.
Figure 1. Nikkei 225 Stock Average, 1950 to 2024
