30-Year Review of the Japanese Stock Market Trend: The Journey of the Nikkei 225 Index from Bubble to Rebirth

The Nikkei 225 Index is an important window into Japan’s economic sentiment, and its historical fluctuations encapsulate thirty years of Japan’s economic ups and downs. Today, this indicator has broken through the 40,000-point mark, rewriting a new chapter in the trend of the Japanese stock market. This article will analyze the evolution of the Japanese stock market trend in depth, helping investors grasp current trading opportunities.

From the TSE Corrected Average to the Nikkei 225: The Origins of Japan’s Stock Market Trend

The history of the Nikkei 225 Index dates back to September 1950, initially called the “TSE Corrected Average,” used to measure the overall performance of 225 listed companies on the Tokyo Stock Exchange First Section. In May 1985, the index was officially renamed the Nikkei Average Stock Price.

This index covers leading companies across various Japanese industries, including automakers like Toyota, Honda, Nissan, as well as tech giants such as SoftBank, Sony, and Fujitsu, along with traditional high-quality firms like Tokyo Electric Power, Japan Tobacco, Kao, and Shiseido. The rise and fall of these companies directly reflect Japan’s economic pulse, making the Nikkei 225 a barometer for the health of the entire Japanese economy.

Four Stages of Japan’s Stock Market Trend: Bubble, Crash, Slump, and Revival

First Stage: Asset Bubble and Sharp Collapse (Late 1980s – Early 1990s)

On December 29, 1989, the Nikkei 225 reached a historic high of 38,957.44 points. During this period, the Bank of Japan implemented ultra-loose monetary policy, flooding the market with liquidity, causing interest rates to plummet to historic lows. Cheap funds fueled speculative frenzy, with stock prices, especially in real estate and technology sectors, soaring wildly.

At that time, the overall P/E ratio of the Tokyo stock market was as high as 58, with many unprofitable or barely profitable companies receiving sky-high valuations, fully indicating that the market was overwhelmed by speculation sentiment. As the bubble gradually inflated to its limit, the index then entered a sharp correction, marking the start of a long-term bear market.

Second Stage: The Lost Decade and Volatility Recovery (1990s – Early 2000s)

In the early 1990s, Japan’s economy sank into a recession. From 1990 to 1992, the Nikkei 225 fell by as much as 70%, creating a staggering decline record. During the 2008 global financial crisis, Japan’s stock market was hit again, with the index dropping to a low of 7,000 points, a new low since the 1989 peak.

This period saw the Japanese stock market exhibit a typical volatile adjustment pattern. Although there were rebounds, it never escaped the shadow of a bear market. When the internet bubble burst in 2000, the index briefly fell near 8,000 points. These events collectively shaped Japan’s “Lost Twenty Years.”

Third Stage: Abenomics and Structural Rebound (2010s)

In 2012, Shinzo Abe returned to power and launched a series of economic stimulus measures, including aggressive monetary easing, fiscal expansion, and structural reforms, collectively known as “Abenomics.” These policies injected new momentum into Japan’s stock market, and the index began a long-term upward trend.

Fourth Stage: Historic Breakthrough in the Post-Pandemic Era (2020–Present)

In 2020, the COVID-19 pandemic shook global markets, but Japan’s financial system demonstrated strong resilience and recovered quickly. More importantly, by February 22, 2024, the Nikkei 225 closed at 39,098.68 points, finally surpassing the historic high of 38,957.44 points from 30 years ago. The index continued to rise, reaching a new level above 40,000 points.

Key Factors Influencing Japan’s Stock Market Trend: Why Now Is Different

Return of Inflation Changes the Game

After a long period of deflation, Japan finally saw inflation return above 2%. In January 2024, the inflation rate reached 2.2%, maintaining above the 2% target for 22 consecutive months. This means investors can no longer rely on cash savings for gains and are forced to reallocate funds into the stock market seeking returns.

【Analysis of Japan’s GDP Growth Rate and Inflation Data】

Influx of International Capital

Warren Buffett visited Japan multiple times in 2023 and revealed through media that he had significantly increased his holdings of Japanese stocks. Under this legendary investor’s influence, foreign capital has accelerated into the Japanese market, becoming an important force supporting the upward trend of Japan’s stock market.

Significant Valuation Repair Space

Compared to 30 years ago, current Japanese stock valuations are healthier. The overall P/E ratio of Japanese listed companies is about 14, far below the nearly 20 of the US S&P 500. Many Japanese stocks are even trading below their book value, indicating a clear valuation repair potential.

If the Nikkei 225’s P/E ratio recovers to 17, the index could reach around 48,000 points, about 20% higher than current levels, offering substantial upside potential.

Technical Analysis: Short-term Rhythm of Japan’s Stock Market Trend

Using the most common technical indicators RSI(14) and MACD(12,26,9) for analysis:

As of the opening price on March 8, 2024, the Nikkei 225’s RSI(14) is 72.80, and MACD is 993.58. Both indicators show strong market momentum, but it is important to note that RSI is approaching the overbought boundary at 75, so investors should carefully review their risk exposure.

From the historical low of 7,000 points in 2009, this level has shown strong technical support. Even during macro black swan events like the 2008 global financial crisis, the index failed to effectively break below this support. After years of sideways consolidation, the index has finally initiated a new upward trend.

【Nikkei 225 Technical Chart Illustration】

Why Is the Japanese Stock Market Trend Worth Watching? Three Investment Reasons

Reason One: Diversified Portfolio

The Nikkei 225 covers key industries such as manufacturing, technology, finance, and energy, forming a balanced investment portfolio. Due to the large number of constituent stocks, individual stock volatility is less likely to impact the entire index, making risk more controllable compared to investing in single stocks.

Reason Two: Cost Advantages

As a passive index investment tool, the Nikkei 225 does not require active stock picking, with relatively low fees, making it especially attractive for retail investors with limited capital.

Reason Three: Market Participation Over Confrontation

Most retail investors find it difficult to beat the market. Instead of going against the trend, following the market upward by buying index funds is a more rational investment choice. For short-term trading, investors can choose Nikkei 225 CFDs to leverage small capital for greater profits.

2024 Guide to Seizing Opportunities in Japan’s Stock Market Trend

Since entering 2024, the Nikkei 225 has risen about 20% in just over two months, and recently broke through the 40,000-point threshold. How should investors seize opportunities for the rest of the year?

Fundamental Support: The Bank of Japan has signaled a clear intention to raise interest rates, indicating the end of the negative interest rate era. Under this background, it will be harder for investors to profit solely from cash savings, and the stock market will become the main channel for asset reallocation. The Kishida government’s policy reforms to reduce cross-shareholdings will further attract overseas investors.

Technical Signals: Although indicators like RSI and MACD are turning bullish, RSI(14) is approaching overbought territory, indicating a short-term correction is likely. Investors should consider gradually building positions during technical pullbacks rather than chasing highs.

Valuation Opportunities: Compared to historical highs, the current Japanese stock market remains attractive. If the P/E ratio recovers from 14 to 17, there is further room for the index to rise.

Nikkei 225 Trading Schedule

To participate in trading Japan’s stock market trend, understanding trading hours is crucial. Here is the trading schedule for the Nikkei 225 in local time and Taiwan time:

Local Time (Japan)

• Morning Session: 9:00-11:30 (Open and Close)
• Lunch Break: 11:30-12:30
• Afternoon Session: 12:30-15:00 (Open and Close)

Taiwan Time

• Morning Session: 8:00-10:30 (Open and Close)
• Lunch Break: 10:30-11:30
• Afternoon Session: 11:30-14:00 (Open and Close)

Taiwan investors should account for a 1-hour time difference and plan their trading times accordingly to capture key market movements in Japan.

The historical fluctuations of the Nikkei 225 vividly record Japan’s economic development. From the bubble peak in 1989 to the deep lows in 2009, and now back to glory, Japan’s stock market trend witnesses the country’s resilience and capacity for revival. Currently, with valuation repair and fundamental improvement, this is a golden period that rational investors should not miss.