Buy and hold index investing worked great over there, didn't it? Granted the US is not Japan but markets are markets and investor sentiment is not always rational while bubble type markets do tend to leave psychological damage behind when they implode. Government then gets involved and tends to make matters worse by over regulating and scapegoating. If market history is a guide, be prepared for lower returns here as well.

did their real-estate bubble follow the same trajectory as the nissei ?

Japanese GDP: $3.75 trillion (2004)
Japanese stock market cap/GDP: 3/3.75 = 80%
US GDP: $11.75 trillion
US stock market cap: NYSE = $9 trillion, Nasdaq = $2 trillion
US stock market cap/GDP: 11/11.75 = 94%

Seems to me Japan is fairly valued compared to the US given their inferior growth prospects.

Tom C: Markets ain't markets. There's the US market, for which we have well over a century to fairly well inform us of what sort of short and long-term variability to expect, and which represents the largest, most dynamic economy in the world (that's some trick we've pulled off, isn't it Rest-of-the-World?). Then there's everybody else's market.

pj:

Given that the top line growth rate of the U.S. economy is likely to be at least twice the rate of Japan's over the next three decades, and probably three times as fast, it appears that Japan is overvalued, or the U.S. undervalued, vs each other.

cjm: Japanese real estate has lost about half its value since 1990. Tokyo real estate has lost 75% of its value in the same period.

davidc: thanks for the info.

interesting that the r.e. market valuations (roughly) tracked the nissei's descent; both are now approximately 1/4 to 1/3 of their peak valuations. now those u.s. purchases (from the 1980's) have to be worth much more now...

I remember reading in the late 1980's that the grounds of the Imperial Palace were worth more than the State of Florida. I said to my self, If were the emperor I would make that swap in a heartbeat.

Japan's problem is essentially a political one. There are too many people who benefit from the uber-protectionist policies of the nation. Small farmers, a key constituency in the rotten borough system of parliamentary elections they have, are huge beneficiaries. Opening up the country to foreign, particularly American and Australian, agricultural products would pretty much eliminate Japanese agriculture and result in significant unemployment in the LDP hinterlands. Even though it would significantly reduce the cost of living for the average Japanese and stimulate investment in the economy, they cannot do this. The Japanese also continue to subsidize their own heavy industry too, making consumer goods artificially expensive at home to enable them to be sold overseas despite the strong yen.

The underlying conundrum is how do you have zero real growth for over a decade while at the same time having real interest rates that are less than zero over the same time. There have to be other deflationary pressures in the economy and the Japanese need to deal with them.

A last bastion of mercantilistic trade practices combined with a keynesian fiscal policy. Public debt is what, 150% of gdp with an annual national budget consuming 40% of gdp. Starting a family or a business in such an environment might seem like an overly risky bet.