So is Japan in a bubble after all Looking at "three factors"� Nikkei average continues to fluctuate wildly

On July 11th, the Nikkei Stock Average hit a new record high on the Tokyo Stock Exchange, closing at the 42,000 yen level for the first time. Less than a month later, on August 5th, the Nikkei Stock Average fell to minus 4,451 yen, a steep drop that was worse than the "Black Monday" of 1987. Stock prices have since been on a recovery trend, but have been showing signs of instability, closing at minus 1,638 yen on September 4th, the third-largest drop this year. With the future of the economy uncertain, given the direction of monetary policy in Japan and the United States, and the successive conflicts in the global situation, it is especially useful to refer to the "history of bubble collapses."

*Parts of this article are based on Teikoku Databank's "How to Read Numbers to Become Economically Strong" (Mikasa Shobo).

 

First of all, what is a "bubble"?

"In Japan, the term 'bubble collapse' is used loosely to refer to the crash of land and stock prices in 1991, but in fact there is a precise definition of the word 'bubble' in economic theory."

?This is the explanation given by Naohiro Fujimoto of Teikoku Databank's Information Division.

"The word 'bubble' means foam, but in economic theory it refers to the difference between 'actual asset prices' and 'fundamental prices.' Fundamentals refer to the basic conditions of the economy. To put it simply, a bubble is a 'rise in asset prices that cannot be explained by normal economic circumstances.'" (Fujimoto)

It seems that the word "bubble" has its origin in an incident.

"The name comes from the South Sea Bubble incident that occurred in England in 1720. Around this time, the South Sea Company in England issued a large amount of its own stock in return for underwriting public bonds, which led to an unprecedented speculative boom, especially among the middle class." (ibid.)

?Nankai Company's stock price soared tenfold in a short period of time, and the resulting speculative fever led to a proliferation of shady companies like a bubble.

"At the end of the speculative boom, companies were even set up with names like 'companies for undertaking great profits, what no one knows,' but the boom resulted in many companies going bankrupt. In response, the British government enacted laws that prohibited the formation of joint stock companies for over a century, but this had a serious impact on the development of the British economy for a long time." (ibid.)

?Of course, it must also be noted that people who bought stocks were forced into bankruptcy and many of their life plans were derailed.