The Nikkei index jumped to 30,924.57 points, before ending the session up 0.77% at 30,808.35 points, in the seventh consecutive session of increases.
The broader Topix index continued to rise, registering 2171.37 points, before falling, ending the session with gains of 0.18% at 2161.69.
The rise in Japanese equities was supported by a strong earnings season in general, the weakness of the yen, which was reinforced by expectations of continued stimulus from the Bank of Japan over a longer period, as well as by the economy, which has started to show signs of recovery after the Covid pandemic.
The Nikkei index, as it climbed to a 33-year high, gained momentum from growing optimism that U.S. lawmakers would reach a deal on the debt ceiling and avoid a catastrophic default.
Among the 33 sectors on the Tokyo Stock Exchange, the precision machinery sector led the gain, up 1.43%, followed by the service sector, up 1.35%, and machinery, up 1.43%. 1.08%.
Uniqlo department store operator Fast Retailing was the biggest points gainer on the Nikkei index, up 2.19%.
Chipmaker stocks started the day strong on the back of rising prices from their U.S. counterparts, but either lost gains or fell sharply thereafter.
Advantest initially rose 3.35%, but ended the day as the Nikkei’s worst performer, down 2.86%.
Financial sector stocks fell 1.56% after hitting a two-month high on Thursday.
A historical overview of the era of the economic “bubble”.
Many economists believe that the start of the so-called “bubble economy era” in Japan coincided with the signing of the Plaza Accord in September 1985 between the United States, Japan, Britain, France and West Germany, which pushes for the devaluation of the US dollar against the Japanese yen and the German mark by intervening in the foreign exchange markets.
It certainly made US exports cheaper and therefore more competitive, it also made US assets cheaper for the Japanese and it also had a negative impact on Japan’s export-led economic growth.
The value of the dollar fell 51% against the yen between 1985 and 1987, so the agreement achieved its main objectives, but at the same time the trajectory was not easy for American exports to Japan , which suffered due to trade barriers in the Japanese market.
With the appreciation of the yen, the Japanese central bank cut interest rates to encourage domestic consumption and investment, so domestic asset prices began to rise.
On the other hand, the sharp fall in the value of the dollar against the yen coincided with the arrival of the manufacturing sector in Japan at its peak, which contributed to the feeling of the Japanese, who had huge amounts of money personal savings, suddenly feeling rich and prosperous, to start spending greedily on consumer goods, especially when traveling abroad.
Japanese banks, which held huge amounts of depositors’ money, began to lend to individuals and businesses with unprecedented ease. Most of these loans have been used to buy local real estate, the value of which – on paper – has steadily increased.
A vicious circle was created as the land was used as collateral for other loans, which were then used either to buy more property or to speculate on the stock market. So the values of land and real estate on paper continued to rise rapidly on the one hand, and banks made loans based on this overvalued land on the other.
At the same time, Japanese companies are buying up a lot of real estate in the United States and elsewhere in the world. Perhaps the most famous of these transactions is the purchase by real estate company “Mitsubishi” of Rockefeller Center in New York for $846 million at the end of 1989.
The high Japanese interest in the U.S. real estate market worried many Americans, some of whom felt the deals were part of a long-term Japanese strategy to control the U.S. economy.
During the 1980s, the Japanese economy was the envy of the world. It grew at an average annual rate of 3.89%, compared to 3.07% in the United States.
While everyone thought the honeymoon wouldn’t end anytime soon, Japanese banks didn’t ask borrowers too many questions about how to repay the loans, or think about what would happen if the securities land used as collateral was beginning to decline. .
Neither the Japanese central bank nor the Ministry of Finance has been able to set the record straight in the banking sector and the real estate market. Land prices in Tokyo have made international headlines.
The case reached the point where the land on which the Imperial Palace was built in Japan was valued in 1989 at more than the value of all real estate in the US state of California. At the end of the same year, the Nikkei 225 index reached nearly 39,000 points, after its value had quadrupled in just 5 years.
In late 1989, Japan’s Ministry of Finance finally caught up and took decisive action that raised interest rates sharply. This was followed soon after by an order for banks to reduce their mortgages. As a result of these decisions, the Nikkei index began to decline sharply, and by the end of 1990 the index had lost over two trillion dollars of its market value.
In the end, real estate values in Japan fell 87% from their peak. The massive fall in stock and real estate prices led the country to lose wealth equivalent to Japan’s GDP in three years.
“This is the greatest loss of wealth in human history suffered by any country in peacetime,” said Richard Koe, chief economist at Japan’s Nomura Research Institute, describing the situation at the time. Japan descended into a debt crisis after many home loans defaulted, triggering an economic crisis that lasted about 10 years.
The reason for the prolonged period of crisis after the bursting of the bubble is mainly due to the inability of the Bank of Japan and the Ministry of Finance to take prompt and decisive action from the first moments, and this may be due to their refusal to recognize the seriousness of the situation.
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