Stimulus and worshipping the turnip

I have been on a wave of stimulus euphoria this week my friends. No not rude stuff or illegal substances – fiscal stimulus of course. I’m in Japan for a week and visited the Tokyo Stock Exchange this Monday as it hit an all-time high, partly in response to new Prime Minister Sanae Takaichi.

Bucking the upwards trend, Asahi Breweries is at a 6-month low, something I like to think I have worked hard this week to correct. It’s important to support local businesses :0)

From page boys to GHQ

The Tokyo Stock Exchange was set up in May 1878 after the Meiji Restoration swept aside the Tokugawa Shogunate and returned power to a new government under the Emperor. Page boys in kimono used to take buy and sell orders in the 1900s before the original building was destroyed in the Great Kanto Earthquake of 1923. The exchange itself was shut in 1945 and the building used as the General Headquarters for the Allied Forces until 1948, finally re-opening in 1949.

Japan was a No Go stock market for decades

Shares and real estate surged in the late 80s before collapsing in the early 90s leading to the “Lost Decades” of stagnation. The 80s bubble was caused by too much easy money and loans-a-plenty, alongside speculative stocks. This excessive party was fuelled by easy credit and borrowing. When the Bank of Japan hoiked up interest rates in late 1989 to curb inflation and chill down the money guzzling and speculation, the bubble burst, leading to a massive collapse in stock prices and property. The Nikkei 225 fell by over 60% within a few years. Ouch.

Banks were left with lots of bad debt and loans which could not be paid back and the market stagnated for years, as unprofitable companies (“zombie” firms) were supported and not allowed to go bust. If you spend all your money bailing things out, there’s not much left to spend on growth. Deflation saw prices and wages reducing. Interest rates were near 0% but people didn’t take the bait and hoarded cash or paid back debt, so the toolkit that is monetary policy (using interest rates to either cool inflation or ramp up borrowing and spending) didn’t work.

The Land of the Rising Stock Market

The main index today is the Nikkei 225, covering sectors including cars, air transport, pharmaceuticals and technology, with global powerhouses like Sony, Panasonic, Toyota, Nissan, Japan Airlines and of course Asahi Breweries.

Even before I arrived to boost sales, the Nikkei 225 index had increased by approximately 30% over the past year and the market is enjoying a moment in the sun.

As for how much we should allocate here, if you go by the rules, Japan forms about 4.8% of the global index- the MSCI ACWI (which is read out as the Miss-Key-Ack-Wee which makes it sound much funnier and topically Japanese). Large multi-asset funds (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/the-basics-of-multiasset-funds-balancing-risk-and-diversification/?brazeid={{${user_id}}}), the best-known retail example of which is the Vanguard LifeStrategy fund, has about 4.5% of its all-share option in Japan. Put another way if you invested £100 in a global shares Pick’N’Mix, about £4.50 would be in Japanese companies.

To drill down another level, if you invested £100 in this global collection, about 25p would be invested in Toyota. And Nvidia alone is a larger holding in the MSCI than the entire Japanese stock market.

Any what on earth have turnips got to do with it?

The words for shares (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/shares/?brazeid={{${user_id}}}) and turnips are pronounced "kabu," in Japanese, which makes turnips a comedy alternative for shares in Japanese wordplay and popular culture. Having headed over 300 miles North from Tokyo, I visited the Kabushima shrine near Hachinohe, built by local fishermen in 1269, rebuilt after a fire in 2015 and also visited by those praying for luck in the stock market. I gave that turnip a good rub and left some money on behalf of all Boring Money readers.

The World’s Most Expensive Typo

A final note. The next time you think you’re having a bad day at work, spare a thought for the Mizuho Securities employee who was asked to sell one share of J-Com Holdings at ¥610,000 during its IPO. He tried to sell 610,000 shares at ¥1 each. Of course, this number of shares would have been worth billions of yen and markets panicked as traders saw what looked like an enormous crash, forums went nuts and panic ensued. The Tokyo Stock Exchange refused to cancel the trade and the bank suffered huge losses as other traders bought something for 1 yen which had a market value of 610,000 yen.

Fast forward to today

Japan is part of a globally diversified portfolio. Anyone with a robo adviser or a ‘multi-asset fund’ or ready-made option (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/ready-made-portfolios/?brazeid={{${user_id}}}) will have some money invested here. And for those looking you can access the index using an ETF (https://www.boringmoney.co.uk/learn/investing-guides/etfs/?brazeid={{${user_id}}}) such as the iShares MSCI Japan, a fund such as Baillie Gifford Japan or the Fidelity Japan fund, or an investment trust – JP Morgan Japan is popular. As always Morningstar is a good independent source for helping to research and choose funds.

Have a great weekend everyone. I will be heading home. Which is sad but I will be delighted about the absence of sea urchin on every menu I flipping well see. Enough sea urchin already!

Holly