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Is Japan At the Beginning of a Major Bull Market? TOPIX Broke Above the Infamous 'Iron Coffin Lid'

The Lost Decade

The Lost Decade is commonly used to describe the decade of the 1990s in Japan, a period of economic stagnation which became one of the longest-running economic crises in recorded history. Later decades are also included in some definitions, with the period from 1991-2011 (or even 1991-2021) sometimes also referred to as Japan's Lost Decades. [1]

Reflation Trade

Inflation has been all but absent from much of the developed world for a few decades, but so-called reflation trades have become all the rage in 2021, as trends in politics, economics and public health come together.

Reflation: It’s the prospect of a return to global growth after the economic hit from the Covid-19 pandemic. Ever since several drugmakers in November 2020 revealed strong efficacy results for their vaccines, investors have piled into assets that win in an improving economic cycle. Ultra-loose central bank monetary policies and hope for more stimulus spending under President Joe Biden has only given more fuel to these bets.[2]

Japan’s long-neglected stock market has suddenly found itself the darling of what’s come to be known as the reflation trade, with its abundance of cyclical shares, such as electronic parts makers, that tend to do well in the early stages of a recovery in global trade. [3]

Technical Chart of the TOPIX

Ever since the collapse of Japan’s stock market in the early 1990s, the TOPIX has struggled to break above the infamous 'iron coffin lid' for 3 decades. The huge resistance level comes between 1830-1890.

Below is the monthly candlestick chart of the TOPIX. We can see every single rally of the index has been capped below the lid until late 2019, when it briefly broke & closed above the level for the first time in over 28 years, only to reverse lower the next month and crash again due to COVID-19 outbreak in 2020.

However, 2021 is a complete different story. The index broke above the lid in January and has since held above the lid for 6 consecutive months. But bear in mind this is a 30-year resistance level, therefore the base case scenario at LHG is still that the TOPIX will likely to consolidate here and keep retesting the broken resistance while keep holding above it to build a solid bottom - and eventually break to the upside.

If our analysis holds true, the TOPIX has potentially just formed a 30-year basing pattern. That's as bullish as an instrument can get. Alongside with the fundamentals working in favor of the technical chart, we see a real possibility that Japan is at the beginning of a major bull market.

Copyright© 2021 Laurence Holdings Group Limited. All Rights Reserved.


[1] Asian Development Bank Institute. "Japan’s Lost Decade: Lessons for Other Economies." Accessed July 5, 2021.

[2] BloombergQuint. "What’s a Reflation Trade, and Who Wins and Loses?" Access July 5, 2021.


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