The nature of economics is cyclical, but anybody waiting for a definitive turn to the up-cycle after the global financial crisis could probably be forgiven for doubting it. Arguably, the world of cyber economics came of age in the 1990s. There was a time when almost any company with any technological basis to its operations could seemingly do no wrong. This stage of economic history was known as the “dotcom” boom since it saw high valuations placed on many cyber ventures. Typically, during the up-cycle, a fair few investors forgot that rising markets inevitably stall and the bubble bursts.
The top of the dotcom market saw the Nikkei index trading at just below 20900 points in June 1996, before the bubble burst. It has taken the index 19 years to recover to these dizzying heights, but the market closed at 20868.3 yesterday, regaining the high ground. The bursting of the dotcom bubble saw 43% knocked of the value of the index within the space of two years (the trough came in October 1998).
However, the Nikkei is still well below its all-time high close of 38,915.87 which was seen some seven years earlier, in 1989, when a property boom reached its peak, driving markets up. It speaks volumes of the problems that have beset the Japanese economy that the market is still only at half of its peak rate twenty-six years down the road. For much of that period, Japan has struggled with deflation which is credited with supressing domestic demand in the Japanese economy (which accounts for about 60% of Japanese output).
The Bank of Japan (BOJ) has set a target for inflation of 2% per annum which is in line with most other central banks around the world. The government of Shinzo Abe is keen to see the Japanese economy kick-started (perhaps we should say boosted to greater heights?) and the BOJ has adopted an accommodative monetary procedure to facilitate this.