Japanese Stocks: A Painful Walk down Memory Lane?

Quintessentially Japanese

Samurai, sushi, and sake are as Japanese as the Honda (HMC) you may be driving or the Toyota (TM) in your driveway. If you’re a gamer, Sony (SNE), Sega, Nintendo, and Konami (KNM) probably bring back happy memories. But when it comes to Japanese stocks, you may not be smiling from ear to ear.

Japanese Stocks: A Painful Walk down Memory Lane?

The Nikkei 225 is a broad equity market index that tracks Japanese stocks. So far in 2015, it has gained nearly 2,000 points over its level at the end of 2014. It touched 20,000 toward the end of April 2015.

The Nikkei 225’s rise

The Nikkei 225’s rise does seem worth a second glance, but not for those who saw the index’s robust levels close to 40,000 in 1989. Yes, it’s been that long. Michael Jackson was still two years away from his album Dangerous under his contract with Sony Music. It was a time when Japanese stocks accounted for ~45% of the world’s market capitalization.

Needless to say, Japanese stocks are nowhere near those levels today. So the question arises: Is investing in Japan worth it?

A look at the facts

In this series, we’ll be looking at some facts from a macro perspective to attempt to arrive at an answer to that question. Let’s start with a few.

The iShares MSCI Japan ETF (EWJ), a popular ETF that invests in Japanese stocks, is up more than 40% in the past three years. Its currency-hedged version, the iShares Currency Hedged MSCI Japan ETF (HEWJ), which was launched in early 2014, is up more than 35% in the past one year.

Numbers alone don’t mean anything, though. We’ll look into it a little more deeply in the next article.