However bad it is in America, it is worse in Tokyo
Japan’s Nikkei stockmarket benchmark finished January six points lower, at 7,994, than the Dow Jones index of US share prices. Is it just numbers of it this inversion telling us something?
Indexes are simply indexes, of course. When the Dow was first calculated in 1896 it wasn’t even based on 100. It started at 40.94 and if the opening calculation had been half that the index would now be about 4,000 and not have overtaken the Nikkei.
Comparing it with the Tokyo index is about as relevant as noting that your IQ is less than your height in centimetres. But if your IQ has until now been higher, the change in that ratio is worthy of note even if the individual numbers are not.
The Nikkei has actually fallen below the Dow before but it is a very rare event. It almost happened in 1965 when both indices were below 1,000 – but didn’t. After 9/11 in 2001 the Japanese index did plunge to the level at which the Dow stood before New York trading was suspended – but as soon as dealings resumed, the US index fell back below the Nikkei.
Then in January 2002, the Nikkei did briefly fall below the Dow for the first time ever. Now it’s done it again.
Previously the Tokyo index had not only been higher but much higher. It peaked at the end of 1989 at 39,000, meaning it has lost 80 per cent of its value. The Dow peaked in early 2000 at 11,500, so is just 30 per cent below its record.
The worry is that even in Japan’s lost decade when asset prices collapsed and retail prices followed, accompanied by interest rates, the Nikkei always retained its numerical premium to the Dow.
True, if currency rates are applied the Nikkei is back on top, but with cross-border investment so low that is of little relevance. The figures are telling that however bad it is in America, it is worse in Tokyo.
Japan’s lost decade was the result of financial flaws, the current problems are industrial, as trading figures from NEC, Hitachi, Fujitsu and Honda illustrate. And the conclusion of the stockmarket indexes crossing is that however bad US investors think the prospects are for their country – now in recession – Japanese investors think their own position is worse.
With low inflation, negligible interest rates and falling asset values now the characteristics of the US - and UK economies – we should be worried.
