(By Martin Hutchinson) In a visit to Japan in the early 1990s, U.S. President George H.W. Bush threw up over the Japanese prime minister. When President Barack Obama visited Japan last weekend, he offered an effusive bow to the Emperor Akihito.
Politically, U.S.-Japanese relations have improved dramatically during that two-decade stretch.
Yet investor regard for Japan has gone the opposite way. Twenty years ago – in the midst of the Japanese stock-and-real-estate bubble – U.S. and other world investors were kowtowing to Japanese investments – and banging their heads on the floor in the process.
Today those same investors are much more likely to throw up in the direction of those Japanese investments.
The up-chuck response to Japanese investment is a reasonable one, given that country's stock-market performance since 1990. After all, the Nikkei 225 share index is down more than 75% from its January 1990 peak. If my broker had locked me into Japanese stocks for the last 20 years I'd probably beat him about the head with the performance report, too.
As Japan fans have been saying for the last decade, the market is a much better buy with the Nikkei at 9,000 than it was when the index was at 39,000. Needless to say, that hasn't enhanced Japan-backers' credibility as the market has meandered around without a trend, performing similarly to Wall Street during the period overall, but without the excitement of hitting all-time highs even in 2007.
Japan's stock market will only recover when Japan's economy shows some signs of real growth. The good news, however, is that real growth may be resuming. Japan's third-quarter gross domestic product (GDP) rose at a 4.8% annual rate, after revised growth of 2.7% in the second quarter. That puts it well ahead of the U.S. recovery, and means that Japan is outpacing the rebounds of most of the European Union, the other comparably rich bloc of countries.
Japan's recession was very different than those suffered by the United States, Great Britain or most European countries. It had already suffered a banking meltdown during the 1990s, and had experienced no significant real estate bubble this decade. Thus, the only new bad debts in the Japanese banking system were the few it picked up from dabbling in the U.S.
