Japan Hit a Demographics Brick Wall

There are only two charts of Japan’s stock market you need to know.

The one before 1990…

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And the one after 1990…

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These two charts best explain the difference between cyclical and structural influences on the stock market.

Normal business cycles create peaks and valleys in the stock market. When the economy is strong and growing, the valleys are short-lived and the long-term trend is up. You see this behavior in the pre-1990 chart of Japan’s Nikkei Index.

The post-1990 chart shows that a significant structural change in Japan’s economy dictated lower stock prices for two decades. The fundamental structural change was, of course, a declining population that made economic stagnation and contraction, not growth, the new normal.

This new normal lopped 81% off the Nikkei from peak to valley.

Structural demographic changes in the U.S. (soon) and China (later) are leading us to the same fate. We should learn from Japan’s struggle and pursue policies that mitigate the drag of a declining population. Otherwise, we could see 3,300 on the Dow and 1,121 on the Shanghai in the (lost) decades to come.

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Categories: Economy

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.