The Japanese Stock Market Just Hit An All-Time High In USD-Terms

Tokyo city, Japan
  • Is the Japanese stock market the nightmare of long-term investors?
  • No. Investors who avoided the bubble-period reached a decent 3.9 real return p. a.

  • Because of the currency appreciation, the return was higher in dollar terms.
  • Japanese stocks in USD hit even new all-time high already.

Japanese yen sign


Why Seem Japanese Stocks Like a Nightmare?

“The return of stock market investments is better than the return of bonds and exceeds inflation.” You may have heard this statement a thousand times. It is mostly backed up by the American stock market performance that produced excellent returns in the long run, in 50-100 years.

But the Japanese stock market seems more a nightmare for many investors because it was moving in a downtrend for decades. The main index, the Nikkei 225, reached a top of 38,916 points by December 29, 1989. Soon, it fell below 30,000 and reached 30,000 only in February 2021 again. “The biggest worry for many long-term investors is a Japan-style decades-long malaise that sees the stock market give you nothing for 30+ years”–wrote the Wealth of Common Sense blog.

Chart 1: The Nikkei 225 Japanese Stock Market Index in the long run
Chart 1: The Nikkei 225 Japanese Stock Market Index in the long run (

The general sentiment in the press was the Japanese stock market did nothing for 30 years. People who purchased shares there in 1989-1990 gained nothing. Others say if you buy on the top of the bubble, you may need to hold your position for 30 years to see any return. Others use the numbers to illustrate that the equity markets return does not always exceed other investments in the long term.

But Japanese Stock Returns Were Mostly Positive

The story sounds exciting for many readers, like horror news. But that is not all the truth. Because the terrible negative returns apply only in case of buying Japanese stocks near the top, in the big bubble. Only within approximately 22 months, in times of a huge stock market and real estate bubble, with extreme valuations. For example, with P/E (price/earning) ratios of 50-100. In other cases, the investors’ returns are in positive today.

But the widely used Nikkei 225 index is not suitable for long-term comparisons because it doesn’t contain the income from the dividends. There is a new index, the Nikkei 225 Total Return to solve this problem. Existing since 2011, but calculated retrospectively.

The Effect of 41 Years of Dividends

The difference is huge. The common Nikkei 225 is currently around 28,743 points, but the Total Return version, by 47,523. Approximately 65 percent higher. How is this possible?

The Nikkei 225 Total Return Index measures the performance of the Nikkei 225, including both movements in the price and reinvestment of dividend incomes from the component stocks. The index value on December 28, 1979, was 6569.47 (equal to the closing price of the Nikkei 225 price index on the day). (Nikkei Indexes)

Over 41 years of dividends paid out cause a big difference in the returns, in every country. Also, on the Japanese stock market. And 1979 was before the crazy Japanese stock market hype. So, this day, at the end of 1979 seems adequate to make another long-term return comparison.

A Decent Real Return of Japanese Stocks

In the table, I determined the yearly return of the Nikkei 225 and the Nikkei 225 TR indices, from the end of 1979. Also, the real values, discounting the inflation. In this period, the metrics show a decent return (3.7 and 4.9 percent p. a.) and a positive real-term return (2.7 and 3.9 percent, respectively). It is lower than the return of the USA and German indices (6.0 and 6.3 percent) but still an appropriate income.

[table id=3 /]

(Click here to view the table in image format.)

Surprise–The Nikkei 225 TR Just Hit An All-Time High

Haven’t we forgotten something? Yes, the effect of the currency, the Japanese yen. In 1979, you paid approximately 241 yen for a USA dollar. Recently, only 109. That means the yen has appreciated by over 120 percent since 1979. How does the value of the Japanese stock market investments change if we calculate the Nikkei 225 in USD? Let’s simulate the portfolio of American or international investors.

Chart 2: Value of the Nikkei 225 Japanese Stock Market Index basket in USD
Chart 2: Value of the Nikkei 225 Japanese Stock Market Index basket in USD (

End of 1979, the 6569.47 yen Nikkei 225 basket equaled $27.3. Today, the Nikkei 225 Total Return stock portfolio is $438.23 worth (a 16-fold surge.) That is a 7.0 percent annual return, and 3.9 percent real return, in dollar-terms. But the funny fact is, the “common” Nikkei 225, the price index, converted to USD, hit an all-time high in February already (Chart 2). The value of the basket was $289, much lower than the value of the dividend-enhanced version. Buying and holding Japanese stocks was a lucrative venture for foreign investors. Especially with the dividends included.

Are Japanese Stocks Still A Buy?

From another point of view, the weak performance of the Japanese stock market was not unprecedented. It was very similar in the USA in the mid-20th century.

“After the 1929 U.S. stock market crash, which triggered the Great Depression, share prices regained their pre-collapse highs in 25 years”–wrote Nikkei Asia earlier.

Are Japanese stocks still a good buying target? There are some positive arguments. Japan has so far successfully solved problems of the pandemic, so the infection numbers stay moderate. The Bank of Japan keeps its easing policy, and it is unlikely to change in the next few years. The Japanese economy is benefiting from the progress of other, fast-growing Asian countries like China.

But the valuations of the Japanese shares are also high. The CAPE Ratio (modified P/E ratio or Shiller P/E) was 24.26 on December 31. This indicator reached 33.44 in the USA, but only 22.82 in Canada, 18.1 in China, 14.1 in Hong Kong, and 13.66 in the United Kingdom. (By data of So, it may be easier to find cheap stocks elsewhere.

(Recommended external reading: 14 Fascinating Facts About Japanese Stocks – From 1989)

Indices with Dividends and Without

The worlds major stock market indices can be classified into two major groups, price return (PR) and total return (TR) indices. The most important difference is that TR indexes (like the German DAX) include the positive effect of the dividends paid out. PR indices (such as Nikkei 225, the French CAC 40, or the commonly used S&P 500 version in the US) do not include dividends. Only depict the impact of stock price changes.

Sources of the inflation data: Japan, USA, Germany, Japan (secondary checking)




I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.

At the time of writing: I’m long in gold miner stocks, silver, platinum, copper, multinational energy companies, Anglo American, and various cryptocurrencies. Short in the German DAX, and the VIX index.


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