20 years in Japan!

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July 21st 2017 marked exactly 20 years since I moved to Japan. I’ve made plenty of memories during those years that are fun to look back on, and it made me wonder what it’s been like for investors in Japan over that time frame. So here is some data from 21st July 1997 to 21st July 2017:

USD/JPY

USD:JPY 20 yrs

There have been some large currency fluctuations over the last 20 years, and it’s interesting to note that at around 111 today we are probably near the average for the period. I remember going to the UK many years ago and £1 was around 240 yen! If the Brexit vote has done nothing else, it has at least made my trips back home cheaper!

Nikkei 225

Nikkei 225 20 yrs

Interesting to note that if you had bought the Nikkei exactly 20 years ago and held it, you are pretty much back where you started! This is excluding dividends, which would have outperformed cash at least. (average dividend yield is 1.68%) Regular investors would have fared better due to the averaging effect of buying regularly and accumulating more during the bad years. (see article on Regular vs. Lump Sum investing) Investors who loaded up during the lows of 2003 and 2009 will have done very well for themselves. Remember, if you see the Nikkei at those levels again you should be buying as much as you can, not panicking and running for the hills.

Interest rate

Japan interest rate 20 yrs

Anyone who has lived in Japan in the last 20 years will know that cash in the bank does not earn anything by the time you have deducted ATM and transfer fees. For homeowners it does make Japan a borrowers paradise though. Buying our own home was a great move for my wife and I, with monthly mortgage payments lower than we were previously paying in rent.

10 year JGB Yield

JGB 20 yrs

Not much to see here I’m afraid, and the next chart explains why:

Inflation

Japan inflation 20 yrs

Japan is still battling deflation, and Bank of Japan governor Haruhiko Kuroda has just pushed back the expected timing for hitting the 2% inflation target for the sixth time, with the new target being fiscal 2019. All this despite a mammoth stimulus effort of debt purchasing and an ultra-easy monetary policy. So far this effort has failed to budge the stubborn inflation rate, although it has certainly impacted the next two charts:

Bank of Japan balance sheet

BOJ Bal Sheet 20 yrs

Japan debt to GDP

Debt to GDP 20 yrs

With the US Federal Reserve already raising interest rates and the European Central Bank possibly looking to tighten from September, all eyes are now turning to Japan, which certainly has the most daunting task ahead when it comes to how to exit this ultra-easy monetary policy. It’s probably safe to say that this is unlikely to begin for some years yet, but it should certainly make the next 20 years an interesting time to be in Japan.

(Charts from Trading Economics – a great source of data if you’re interested in this kind of thing)

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