Plotting the Historical Spread
Going back to 1974, the period for which we have available data on JGB yields3, we can see that during most of that time, at least historically speaking, was characterized by JGB yields being higher than Japanese equity dividend yields . Only recently have yields on Japanese equities exceeded those on JGBs on a sustained basis.
Yield Spread (Dividend Yield Minus JGB Yield) for Japanese Equities vs. JGBs (9/30/1974–9/30/2013)
• Japanese Equity Bubble: One of the lowest points on this chart (indicating much higher bond yields than dividend yields) occurred in 1989. This was around the bursting of the Japanese equity bubble, a time when Japanese equities were at some of their most expensive valuations in history—with dividend yields below 0.45% and the JGB yield at 5.6%.4
• 2008–09 Global Financial Crisis: One of the highest points on this chart (indicating equity dividend yields being higher than JGB yields) occurred in early 2009, the beginning of the 2008–09 global financial crisis. At this point in time, global equity markets saw prices collapse, dividend yields spike and bond yields fall. The dividend yield reached 3.13% while the JGB yield was 1.17%—at more than 1.90%, this was the highest spread of equities over JGBs.5