Why has Japan's stock market hit a historic high despite the widely discussed 'Lost Three Decades'? What exactly happened during these thirty years?

Hey, that's a great question because it really does seem contradictory. We've heard for almost a lifetime that "Japan's economy is failing," yet suddenly, its stock market benchmark, the Nikkei 225 index, has surged past its 1989 all-time high to set a new record.

It feels like running into an old classmate you haven't seen in thirty years. You always heard they weren't doing well, only to discover at the reunion that they've become a big boss. So, what exactly happened in between?

Don't worry, I'll try to break it down for you in plain language.

First, we need to correctly understand what was actually "lost" during the "Lost Three Decades"?

Japan didn't regress over these thirty years; it was more like "running in place."

Imagine Japan's economy in the 1980s was like a sports car with the accelerator floored. Stock and real estate prices were ridiculously high – there was even a joke that "selling Tokyo could buy the entire United States." Then? The bubble went "pop" and burst.

After the bubble burst, Japan fell into a deep hole, primarily defined by three things:

Corporate "Zombification" (Zombie Companies): Many companies that should have gone bankrupt were kept on life support by banks afraid of bad loans. These companies didn't make profits or innovate; they just lingered in a half-dead state, hogging vast amounts of social resources and making it hard for vibrant new companies to emerge.
Deflation: This is a terrifying thing. Simply put, prices kept falling. You might think, "Isn't stuff getting cheaper a good thing?" For the economy, it's a disaster. Because everyone thinks, "It'll be even cheaper tomorrow, so I won't buy today," leading to a collapse in consumption and investment. Companies can't make money, so they don't raise wages, employees have less money and spend even less... a vicious cycle.
Loss of Confidence: The entire Japanese society became extremely conservative and cautious. People saved frantically, afraid to spend, invest, or take risks. Companies sat on huge piles of cash but refused to invest in expansion or raise employee salaries.

So, the "Lost Three Decades" doesn't mean Japanese living standards went backwards. Instead, the economy lost its growth momentum, crushed under these "three heavy burdens," and appeared stagnant compared to the rapidly developing world (especially China).

So why is the stock market suddenly "bullish" now?

This didn't happen overnight. It's the result of many factors accumulating over time, finally converging. You can think of it like Japan's car, stalled for thirty years, was quietly being repaired, parts replaced, and fuel added. Now, several key "igniters" fired simultaneously.

1. Companies Finally "Got It": Starting to Think About Shareholders

This is the core change. Big Japanese companies used to operate more like "big families," prioritizing lifetime employment for workers and bank relationships, with little regard for stock prices or shareholder returns.

Now, led by reforms from the Tokyo Stock Exchange, they are constantly pushing listed companies: "You're sitting on piles of cash! Either invest it or return it to shareholders through dividends and stock buybacks! Stop hoarding!"

As a result, many large companies started:

Massively buying back their own stock: This reduces the number of shares available, naturally pushing prices up.
Increasing dividends to shareholders: This makes holding the stock much more attractive.

The corporate goal shifted from "survival" to "making money for shareholders." For investors, this is fantastic news, so of course they want to buy these stocks.

2. The Magic of a "Weak Yen": Making Money While Lying Down

The Japanese Yen has depreciated significantly against the US Dollar in recent years. For ordinary people, this means imports are more expensive – not good. But for Japan's giant exporters (like Toyota, Sony, Nintendo), it's like manna from heaven.

For example:

Toyota sells a car in the US and makes $30,000.
Previously, that $30,000 converted back to 3.3 million Yen.
Now, due to the weaker Yen, the same $30,000 converts to 4.5 million Yen.

See? It's the same car, but the profit in Yen terms has jumped significantly. The financial reports of these large companies look exceptionally bright, profits soar, and stock prices naturally follow suit.

3. Farewell to "Deflation": Money Finally Starts Circulating

The "deflation" that plagued Japan for thirty years has finally ended. Japan is now experiencing "inflation" (though still low). Prices are starting to rise, and people realize "if I don't buy now, it might be more expensive later," boosting willingness to spend.

More importantly, companies have also started raising wages! This is rare after decades. Employees have more money, so they spend more, slowly revitalizing the economic cycle.

4. The "Oracle" Effect: Warren Buffett's Signal

The "Oracle of Omaha," Warren Buffett, began heavily investing in Japan's five major trading houses (think of them as massive conglomerates) starting in 2020. This move sent a powerful signal to global investors: Japan is worth investing in again!

When the smartest money arrives, global investment institutions and hot money naturally follow. They discovered that compared to other markets like the US, Japanese stocks were still cheaply valued, companies were improving, and the Yen was weak – a true "value haven."

5. External Environment "Assist"

Global capital is also seeking new safe havens. With increasing geopolitical risks and concerns about slowing growth in certain markets, politically stable Japan with sound regulations became a very attractive option.

To summarize

So, the Japanese stock market hitting new highs doesn't mean the "Lost Three Decades" were a myth. Rather:

Over the long thirty years, Japan's deep-seated structural economic problems (like corporate governance) have been gradually fixed. When these internal reforms met favorable external conditions – a weak Yen, the return of inflation, and global capital chasing opportunities – they collectively ignited this historic bull market.

The stock market is an economic "barometer," but sometimes it looks further ahead; it reflects expectations for the future. The current market expectation is: Japan is finally emerging from that long tunnel, and there might be light ahead.

Of course, whether this car can keep running depends on whether Japan can solve deeper issues like its aging population. But for now, at least, the engine is roaring again.