It was during the economic boom that Japan rapidly became the world's second largest economy (after the United States), and still holds the position to this day.
It’s hard not to wonder if this could be a long overdue echo of the Bubble Era.
Competitive Advantage
After World War II, the U.S. established a significant presence in Japan to slow the expansion of Soviet influence in the Pacific.
The United States led the Allies in the occupation, rehabilitation and reconstruction of Japan – a traditional society slowly influenced by the United States.
The influx of foreign assistance provided economic opportunities for Japan to export its manufactured goods to the U.S., ironically triggering a domestic advantage though the onset of large, family owned business conglomerates interlocking with each other for bank support eg. Mitusbishi Bank, Mitsubishi Motors, Mitsubishi Heavy Industries.
The conglomerate bought each other's shares for long-term stability, receiving high-level support from the government, but criticized by the West as crony capitalism because of its unfair competitive advantage over domestic businesses.
Japan had the structure to develop, copy, improve and re-sell cars, electronics and high value items back to the West, only cheaper, positioning themselves with a strong competitive advantage.
Through the Decades
By the late 1970s, Japan was ahead of the game.
While Japan held high-level robotic assembly lines, the U.S. was still assembling cars by hand.
Japanese-made fuel-efficient vehicles reduced the appeal of the gas-guzzling American cars.
In the 1980s, when the American video game industry experienced a bust, Japanese gaming powerhouses Nintendo and Sega exploded.
Japan had one of the highest standards of living in the world. In traditional lifestyle, men worked with utmost loyalty for a business conglomerate, in exchange for lifetime employment.
Inflating Bubble
1960 to1980 was considered Japan's Economic Miracle as the government ignored defense in favour of economic growth.
Stocks and real estate prices continued to rise to a point of a bubble waiting to burst.
The booming economy led to strong household savings that resulted in a cash surplus in the banking system.
Banks became lenient with lending practices.
Healthy trade weakened the dollar and German Deutsche Mark against the yen, and the yen appreciated against other currencies making for inexpensive foreign investment for Japanese companies.
Overconfident banks began taking risks from funds borrowed from foreign capital markets of 186 trillion yen.
Lost Decades
But, a bubble will eventually burst. In 1989 banks tightened their monetary policy as a cautionary measure.
Interpreted as a warning, the Nikkei bubble popped, the stock market plunged, the real estate bubble popped, and the country was thrown into a financial crisis.
Stock and property prices steadily deflated during the 1990s and 2000s and this became known as the Lost Decades.
By 2004, residential real estate in Tokyo was only worth 10 percent of its 1980s peak.
Abenomics and the Aftermath
It has been over two decades since Japan's economic bubble burst and the country is still battling with the fallout - near zero interest rates, quantitative easing or "money printing"; and weakening yen.
But, since 2015, Japan has been positioned on an upward cycle on the back of the depreciation of the yen, thanks in part to improvement of the Japanese economy through Prime Minister Shinzo Abe’s "Abenomics" plan of three arrows, a program intended to improve confidence.
First arrow
The stimulus program aimed to increase government spending programs and stimulate consumer spending and economic activity including structural changes in health care, agriculture, energy and labour.
Efforts primarily focused on reconstruction in natural disaster areas and aid for low income families including vouchers and coupons for residents, and heating oil subsidies.
Second arrow
Quantitative or monetary easing, printing currency of 60 to 70 trillion yen to reverse deflation.
This has contributed to the yen's decline of more than a third against the U.S. dollar.
The weaker yen has benefited exporters and dramatically improved corporate profits – a reform of regulations to make industries more competitive and attract private investment.
The government and Bank of Japan continue to take steps to encourage companies to raise wages as a part of a campaign to reverse the country's "deflationary mindset" and achieve two percent inflation.
Third arrow
Growth strategies intended to boost and maintain public and company confidence, to spur private-sector investment.
Investments will trigger increased hiring, new research and development, and competitor acquisitions.
Still too soon to assess if this arrow will yield tangible results.
Revived Echos of the Bubble Era
Japan's stock market has almost doubled in value, increasing the wealth of Japanese consumers.
The yen has fallen by nearly one third against the U.S. dollar, invigorating Japan's export industries. Unemployment has fallen.
A surge of tourist arrivals in 2014 has supported export growth increasing industrial production.
Japanese corporations are also considering relocating their production from overseas, back to Japan to further boost the economy.
Effects on Japan’s Real Estate Properties
The depreciation of the yen has been attracting overseas buyers of Japanese properties at discount prices in return for high yield monthly income.
According to managing partner of JPMorgan Global Alternatives, Anton Pil, alternative assets will become more attractive in the coming years as the Fed sells bonds to reduce its balance sheet.
“Investors are seeking non-traditional forms of fixed income that generate cash and also serve as a hedge against inflation,” he said.
“That’s why both real estate and infrastructure have drawn the attention, especially of Japanese investors.”
Since investors nowadays look for non-traditional forms of fixed income, which can generate cash as well as serve as an inflation hedge, the Japanese real estate and infrastructure is becoming more attractive.
Related reading:
Top 4 tips for investing in the Tokyo real estate market
A brief guide to leasing, permits and taxes for non-resident landlords
Understanding Japan's Counter-Intuitive Real Estate Market
