This morning has brought quite a significant event in Nihon or the land of the rising sun. So let me hand you over briefly to The Japan Times.
Japan’s Nikkei 225 stock index broke 50,000 for the first time ever on Monday, after a mix of recording-setting days and choppy trading over the past few weeks.
The benchmark passed the historic level minutes after the opening, and closed the day up 2.46%, at 50,512.32.
It rose as high as 50,549.60 — the new record — during the day.
Japan’s benchmark stock index is now up more than 30% over the past year.
It has been an extraordinary year for stock markets and Japan in particular. In February we saw it pass the 1989 high and then in early March the 40.000 Klaxon was pressed It seems easy to forget now that April saw rather a dive and indeed some panic as we now note that the trip from 40,000 to 50,000 took only around 7 months. I guess you can call that a bull market. But my point is much deeper because it is now quite clear that one feature of The Lost Decade is n modern parlance like over.
This is a big deal in many ways and on a personal level I recall working in Tokyo more than 30 years ago when the stock and property market collapses were having a big impact. In anyone’s life that is a long time and many Japanese must gave assumed that a bear market was a feature of life. Then there was the response of Prime Minister Shinzo Abe which began back in 2013 with the Nikkei 225 around 7500. It began before his election as his Abenomics policy was really rather clear on the subject and if he was with us now no doubt he would hold up and then drink a glass of his favourite sake. His good humour will have been enhanced by the fact that the recent rally has been driven by expectations of what we might call Abenomics 2.0.
It is however significant that a theme of my work is in play here. Because we see that it is an asset price that has ended The Lost Decade but not something in the real economy such as real wages. This is again a feature of the 0.1% or the 0.01% winning and indeed Japan Inc ( pork barrel politics was always a critique of Abe-san and his policies). Of course Mrs.Watanabe should have done well too and I hope so.
The Tokyo Whale
A feature of the Abenomics inspired rally has been purchases of Japanese equities by the Bank of Japan. These began on a small scale but really escalated at the time of the Covid pandemic as it stood out with both the size of the purchases and the fact that it bought on down days only. So it became the clearest example of an equity market put option I have seen. Other countries did so implicitly via lower interest-rates and QE bond purchases whereas Japan acted like the “powered up Pac-man” mentioned by The Kaiser Chiefs.
Back on August 17th 2020 I noted this.
The Bank of Japan now holds nearly 6% of market cap of the larger Topix Index. ( Asif Abdullah)
On September 9th 2020 I noted this.
The Bank of Japan bought another 80.1 billion Yen of Japanese equities earlier today as it made its second such purchase so far this month. As of the end of last month the total was 33,993,587,890,000 Yen. Hence its nickname of The Tokyo Whale.
In Covid The Tokyo Whale emerged from its chrysalis leading me to reflect in this manner.
Quite what good this does ( apart from providing a profit for equity investors) is a moot point? After all the Japanese economy was shrinking again pre pandemic and there was no sign of an end to the lost decades.
It carried on buying for some time continuing my assymetry theme as central banks start policies much quicker than they stop them and the eventual total was 37,186,178,276,000 Yen. That in itself poses its own problem as whilst it can delight in the profits as it must at present prices be valued at more than double that amount. Except how can you sell it? Apart from the scale of the sales you have the obvious inference of a central bank selling its own equity market.
It is a day for many of my themes as The Tokyo Whale is now facing the think of how you would get out of something before you get in question. We can learn quite a bit from a speech given by Board Member Takata on the 20th of this month and the emphasis is mine..
The intent of ETF purchases was to contain risk premiums in the stock market and improve the deflationary situation. As this purpose has been fulfilled, the Bank decided in March 2024 to discontinue its purchases.
Or as Elvis Costello put it.
Pump it up until you can feel it.
Pump it up when you don’t really need it.
Perhaps they forgot where the off button was. But the real issue here is highlighted as Takata-san continues.
Now that Japan’s economy is breaking free from a deflationary environment, the Bank– with a view to proceeding with policy normalization– arrived at the decision in September 2025 to sell its ETFs and J-REITs. Although risk premiums in the stock market have been normalized, sales of ETFs and J-REITs should be carried out with caution to avoid inducing destabilizing effects on the financial markets.
So purchases were immediate and large but sales ” should be carried out with caution.” It is kind of him to so clearly illustrate my asymmetry theme. We can learn more from the words of Governor Ueda at the last policy meeting press conference back in September.
“On a simple calculation, the period required for disposal at the pace decided this time would exceed 100 years for both ETFs and JREITs.”
The can has been kicked again nicely into the terms of his successors. To be frank I think that Ueda-san views this with the same enthusiasm as Arsenal fans watching Tottenham win the Europa League.
The Japanese Yen
Because of its position as an exporter a weaker Japanese Yen has long been associated with a higher stock market. With it at 153 versus the US Dollar we can see that it has been in play. That is added to be a new low versus the Euro this morning at 178.15.
Comment
On the road we have traveled today we see that the elevation of Sanae Takaichi to Prime Minister has been an echo of the elevation of Abe-san. The prospect of Abenomics 2.0 has had the same effect as the original version. In the short term that has been added to by the visit of President Trump and hopes for an easing of trade tariffs.
Switching to another arena the likelihood of interest-rate rises in Japan has rather receded. I mean in terms of general perception as I never thought they were likely anyway. Otherwise they would be a lot higher than 0.5% already. Of course that raises the issue of the way bond yields have risen. But let me leave you with a question. At what level do you think the Bank of Japan would start buying again?
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