Japan’s stock market is attractive again (Photo: Freepik, Karn2608)
Warren Buffett repeatedly emphasizes how important it is to focus on corporate analyzes and not be influenced by macroeconomic fluctuations. Peter Lynch underpins this statement with his well -known quote: “If you spend 13 minutes a year on economics, you’ve wasted 10 minutes.”
But the remaining 3 minutes should not be ignored. Because some macroeconomic events are not just a short -term nature, but can shape the economy and the stock market for decades. Japan provides an impressive example of the fact that macroeconomic factors cannot be completely ignored.
Japan’s fatal economic policy
Japan was an emerging economic power in the 1980s. The real estate and stock markets boomed and speculators were increasingly attracted. This was accompanied by the fact that loans were easy to preserve and the bladder on the Japanese market worried more and more. The Nikkei index reached its record of 38,916 points at the end of the 1980s. Only after around 35 years the brand was broken again in 2024.
The real estate market also lived from speculators and real estate prices reached exorbitant heights, while the banks generously awarded loans without a credit check. The overheated market should then be slowed down with rising interest rates. However, these measures were far too late. A fatal economic policy. In addition, it was not only too late, but also far too aggressive. From 3 percent it went quickly to 9 percent.
The effect was devastating. The Nikkei collapsed by almost 50 percent in a short time and the real estate bubble burst. Years of stagnation and deflation followed as a result of inadequate fiscal and monetary policy.
A toxic spiral: debts, deflation and demography
The case of Japan shows how wrong decisions can cause sustainable problems and can put an economy into a long downward spiral. After bursting the bladder, the prices dropped significantly. Consumption and the investments decreased significantly because cheaper prices were expected in the future. The demand continued and deflation was omnipresent.
At the same time, companies were overloaded with debts that they had recorded during the boom phase. Austerity measures instead of investments were the order of the day. Ultimately, Japan is known for his aging society, due to the long life expectancy and the low birth rate. An ever smaller part of the population was available for the labor market. The lower income also stressed the demand and the economic recovery of the country.
Macroeconomic measures must be questioned as investors
As an investor in the Japanese market, the past few decades had been rather bleak. Depending on the entry, you should also have had massive losses and would still be in the reduced in -inflation. As is done against crises, it must not be ignored, because these measures can have profound consequences for the economy and the prosperity of a region.
Every investor should have awareness of possible macroeconomic risks and should be careful in over ratings and economic imbalance. Government bonds or a complete exit from this uncertain market would have been less lossy.
Japan: Where does the country stand today?
The decades have shaped the country and made it very careful. The companies shine with flawless balance sheets and have a high level of security due to history. But for growth, it always requires a certain investment and risk will.
The economy in Japan shows signs of relaxation and now offers opportunities for investors again. Loud International Monetary Fund (IMF) If the growth in 2025 is to be 1.1 percent, compared to 0.3 percent in 2024. The Bank of Japan could raise interest if inflation remains over 2 percent, but wage increases should maintain economic growth.
Japan’s stock market is attractive again
According to MSCI, profit growth in 2025 is expected to be 8.5 percent, while the evaluation of the Japanese stock market compared to other regions with one Course-profit ratio (KGV) of 14 is still cheap. Companies’ balance sheets are healthy and structural reforms such as more transparency, investment incentives and stock returns, offer great opportunities for investors with a favorable assessment.
If the Bank of Japan raises interest rates, the yen could also upgrade and bring exchange gains for international investors. However, this would also take the risk that the fiscal policy measures slow down the growth. Japan is also heavily dependent on export. A stronger yen endangers the export volume. This risk can be reduced by primarily relying on non-export-oriented companies.
Nevertheless, macroeconomic fluctuations are always part of the market and should not be confused with structural problems such as in the 1980s. As Peter Lynch put it: “If you spend 13 minutes a year on economics, you’ve wasted 10 minutes.”
Disclaimer:
No investment advice. No call to buy or sell securities.