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 exchange traded funds (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. [How to play Japan’s stimulus.]
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. [How are the markets fighting this?]