The leading Japanese stock index, the Nikkei 225, briefly hit a level of 40,000 at the end of 1989. Guess what? In 2019, the Nikkei 225 index is still at 21,085, a full 47% below the all-time high 30 years later.
The Nikkei has bounced around a lot over the decades, but it has never come close to the 40,000 mark. At the lows in the 1990s, it was around 7,000, or down 82.5%, comparable to how U.S. stocks performed from 1929–1932 in the Great Depression.
By the end of the 1990s, critics of the Bank of Japan’s efforts to revive the Japanese economy began referring to a “Lost Decade.” The implication was that the BoJ had not provided enough stimulus in the form of money printing and had failed to help Japan escape from the liquidity trap that impaired asset values, lending and spending. Ironically, critics still use the phrase “Lost Decade,” but of course the reality is that there have been three lost decades since 1989.
After 30 years, Japan is still stuck with low growth (punctuated by occasional technical recessions), deflation, negative interest rates, futile money printing and all of the indicia of a prolonged depression. When Ben Bernanke came along as Fed chair in 2006, he was determined to avoid the mistakes of the BoJ. Instead, he made every one.
Bernanke cut rates, printed money, bought assets and pumped up asset values. Still, nothing happened.
The U.S. economy became stuck in a 2.2% growth rut, well below the long-term trend of 3.2% growth. Bernanke had his own “lost decade” before stepping aside for Janet Yellen in 2014.
This article brings the sad story of the Bank of Japan up to date. BoJ Gov. Haruhiko Kuroda was appointed in early 2013 and had vowed to avoid the mistakes of his predecessors. He would pursue negative interest rates and massive asset purchases (including stocks and private debt) and push for a weaker yen.
Once again, these efforts failed. The yen actually grew stronger (because of an absence of inflation) and negative rates signaled deflation rather than inflation, which intensified the deflationary mindset that had already gripped the Japanese people. Now Kuroda is discredited and the Bank of Japan is out of ideas.
Maybe Japan should just abolish its central bank (the U.S. had no central bank from 1836 to 1913 and the economy flourished). That’s one idea Japan has not tried. It just might work.
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