The investment bubble that burst in Japan 20 years ago still resonates deeply with the country’s citizens. Has this fear led to an inertia that’s having a domino effect in the country’s ETFs.
Although homelessness and suicide are up, Japan still has much going for it. It has top-notch exporters, $16.3 trillion in savings and its denizens still gravitate toward luxury dining and shopping.
After the bubble burst, though, Japan went risk-shy. Retail investors were among the first to get out of the stock market and were net sellers of equities from 1991 to 2007.
People basically lost faith and confidence in Japan’s economic power, and expectation was lowered dramatically. As a result, people put their money in to fixed-income, resulting in a 78% rally in 10-year government bonds since their 1990 nadir.
The deflationary period has led way to a weak lending environment, while companies have focused on paying down debt. The Economist reports that firms in more protected areas of the domestic economy have fared badly: profitability, wages and investment have declined in the past decade.
In turn, households have cut back and the larger force of women in the workplace has led to a slower birthrate. As society ages, growth in the stock of savings has dwindled. Savings are bound to fall as more people retire. Many are wondering if the next decade is going to get tougher than the past two have been.
- iShares S&P/Topix 150 Index (NYSEArca: ITF): up 1% in the last month
- SPDR Russell/Nomura Small Cap Japan (NYSEArca: JSC): up 0.7% in the last month
- WisdomTree Japan Total Dividend (NYSEArca: DXJ): down 0.6% in the last month
- iShares MSCI Japan (NYSEArca: EWJ): down 0.9% in the last month