In 1989, an Osaka tempura restaurant owner, who claimed a divine destiny for her stockpicking, hosted share-tipping seances and channelled the advice of a magical toad statue, was Japan’s most successful and influential individual investor.
The history of Nui Onoue, who was 59 at the time, whose asset portfolio expanded to billions of dollars and whose subsequent fraud conviction forced two banks into mergers, have for years been the great cautionary tale. This is not just because she and her shenanigans were so lurid, but because they blended all too naturally into the deranged backdrop of the bubble era. Japan remains dented by a living memory of what true, nostril-flared investment mania looks like when it grips a country.
Which is why the sight of the Nikkei 225 Average surging back above the 30,000 line for the first time since 1990 last week — as US benchmarks like the S&P 500 and Nasdaq were trading at all-time highs — felt like a venture into both a new and old era. Assumptions about Japanese retail investors that have formed over the past three post-bubble decades may suddenly no longer hold.
The Nikkei, whose construction accords outlandish weightings to a handful of companies, has now risen 78 per cent since its pandemic trough in March 2020. It is viewed by professional investors with some scorn. But its role in defining market narratives and psychology, says Peter Tasker, a veteran analyst of Japan’s bubble, remains immense.
The break last week through 30,000 leaves the benchmark still almost 30 per cent below the December 29 1989 peak and trading on a decisively smaller price-to-earnings multiple. But the historic resonance of 1990 is powerful and these are heights that have not once, in 30 years, felt remotely recoverable.
Even eight weeks ago, 30,000 felt like a stretch, but talk of reaching the old 1989 peak has now elbowed its way into public discourse. On a practical front, the crossing of this line is expected to intensify the debate over whether the Bank of Japan should now end its decade-long support of the market through purchases of exchange traded funds. More viscerally, this big round number has acted like a Proustian madeleine. It provides sensory transportation back to a happy time before the miseries of the economic “lost decades” and sustained market sell-off began to weigh through the early 1990s and beyond.
Trading desks offer sensible reasons — a strong earnings season and relatively low liquidity during Chinese lunar new year — for the Nikkei’s recent surge. But all this history has produced a suspicion of froth that Japan has been conditioned to beware. For many, the question is whether Tokyo stocks, now roughly a third owned by non-Japanese investors, are in the grip of something irrational, foreign in origin and inherently fragile.
The eye-catching external phenomena of the past month — including the whipsaw trading in GameStop and other “meme stocks” in the US, the skyrocketing of bitcoin prices and even the gyrating share price of Tesla — represent an addictive dislocation from sanity. For some, it evokes the days of building portfolios around the whims of stockpicking toads.
But most people believe that Japan remains very far from its manic alter-ego of 1989, leaving the question of what, domestically, might have changed. Retail investors, suggests Nomura’s chief equity strategist Yunosuke Ikeda, have morphed into a new type of force — not just through numbers, but through trading behaviour.
In the past, Japanese retail investors were reliable contrarians of prevailing market direction: they sold as the market rose and bought as it dipped. In effect, they have been market stabilisers — dampening big moves in both directions. But since the Covid-19 pandemic, their ranks, according to Japan’s largest online brokerages, have expanded by more than 1m, their average age has fallen substantially and the frequency with which they trade has risen.
With that transformation, says Ikeda, has come a break with historical patterns of behaviour. He says on an aggregate basis, retail investors are less sensitive than they were in the past to price level or direction and now (at least on current evidence) appear content to continue buying through a rally. When a correction comes, he added, they may also now exacerbate the drop.
That gives the passing of the 30,000 line on the Nikkei its greatest significance: retail investors have continued buying, where for the past 30 years they would dependably have taken the moment as a clear sign to sell. If the theory continues to operate, Japan strategists may need to reconsider the market: not as one that has lost its head, but one that might, at least, have lost its collective memory of Onoue.