The mother of all market crashes

Matthew Lynn marks the 20th anniversary of the peak of the Nikkei and asks whether we’ve learned any lessons

Twenty years ago this month, as we’ve been reminded by countless documentaries, the Berlin Wall was coming down. Eastern Europe was convulsed by the revolutions from which communism never recovered. But much further east, something else was happening which arguably has had just as profound an impact on how the global economy has developed since then. The rampant bull market in Japanese equities was heading for its final, frenzied peak.

For stockmarket historians, 29 December 1989 will always be a key date. On that day, the benchmark Japanese index, the Nikkei 225 which includes companies such as Honda, Nissan and Sony, hit its all-time peak of 38957, having quadrupled in value from 1985. When the markets re-opened for the first trading day of the 1990s, it started falling. And falling, and falling, and falling.

And give or take a few blips, it has been falling relentlessly ever since. Over the next two and half years, the Nikkei fell by 63 per cent. But that was far from the end of it. In March this year, amid global financial panic, it touched a fresh low of just over 7000. Today, as the anniversary nears, it has managed only to claw its way back to 9500, a quarter of its level two decades ago.

Nor is this sad story only about stocks. In the 1980s, the Japanese property market went even crazier, reaching levels that might have made a Foxtons salesman blush. That market carried on rising even as stocks slid: in 1991, an alarming calculation found that the value of Japan’s land was about $18 trillion, or four times the value of all the land in the United States, even though Japan is only about the size of California.