For 25 years, the Japanese yen has been a safe haven currency, leading to a strong yen that hurts the country’s export-driven economy. This has been a blessing for foreign investors, who have engaged in short selling, causing Japanese stocks to fall and stagnate. This article argues that the short-sightedness and disregard for the stock market by Japan’s public and private sectors have led to a massive outflow of national wealth, which is the root cause of the country’s “lost decades” and the resulting rise in poverty.

For 25 years, the Japanese yen has been a safe haven currency, leading to a strong yen that hurts the country’s export-driven economy.
This has been a blessing for foreign investors, who have engaged in short selling, causing Japanese stocks to fall and stagnate.
This article argues that the short-sightedness and disregard for the stock market by Japan’s public and private sectors have led to a massive outflow of national wealth, which is the root cause of the country’s “lost decades” and the resulting rise in poverty.

For 25 years, the yen’s role as a safe haven and relentless foreign short-selling hollowed out Japan’s national wealth.
This chapter examines how Japan’s neglect of its stock market fueled the “Lost Decades” and left one in seven citizens in poverty.

Japan’s Lost Decades: How Foreign Short-Selling and the Yen as a Safe Haven Hollowed Out National Wealth

July 17, 2010
As I wrote earlier in The Turntable of Civilization, every time the yen becomes a safe-haven currency, the result is another surge in yen appreciation.
Whenever this happens, Japanese stocks are subjected to massive short-selling, and share prices plunge to the point where one wonders what the stock market is even for.
In Japan, the stock market can fall in just two days, yet it takes a full year to recover.
It is obvious how much profit foreign capital—which accounts for 70% of Tokyo Stock Exchange transactions—has reaped in such a market.
While twenty-something youngsters overseas were earning annual salaries of 50 million yen from these profits, over the past twenty years more than 10 million young Japanese found themselves without steady employment, surviving on less than 2 million yen a year.
As a result of relentless short-selling, Japan’s stock prices still have not returned to the levels of a quarter-century ago—an unbelievable fact.
This is the consequence of the stupidity of Japan’s political and business elites, who long looked down upon the stock market.
During this period, a British fund manager who invested European capital in Japanese stocks remarked, “Japanese stocks are absolutely return.”
The method was simple—short-selling futures while buying actual shares.
Warren Buffett himself limited his “investment in Japanese stocks” to short-selling Nikkei futures.
With constant short pressure, Japanese stocks had no chance of rising.
Japan once held the world’s largest personal financial assets—1,500 trillion yen.
Some say that figure has now shrunk to 1,000 trillion yen.
If true, it means that over the past 25 years Japan’s immense national wealth has been siphoned away in precisely this manner.
Swing the exchange rate to profit one day, then rake in more gains through short-selling the next.
The profits were astronomical.
From America’s perspective, Japan—whom they had helped make into an economic superpower—refused to stand tall as a hegemonic nation, so perhaps the logic was: if Japan won’t lead, then repatriate the wealth it created back to the United States.
The reality is that foreign investors earned vast, absolute profits in Japan—the most politically and economically stable nation after the U.S.—while taking on bigger risks in unstable emerging markets.
In other words, Japan’s stock market became their hedge, leaving Japan as little more than a cash cow and a stepping stone for 25 years.
This is why, even after months of slow recovery, foreign investors who dominate 70% of the market quickly cry “overheating.”
Yet when the market plunges into the depths of hell in just a short time, they never call it “overcooled.”
Just last year, a leading company in a major sector saw its stock price collapse so severely that many wondered if it would go bankrupt.
Shortly afterward, the Tokyo Stock Exchange disclosed short-selling data.
To my astonishment, a top foreign firm had shorted 3.5% of that company’s total outstanding shares.
Even with rough calculations, that one firm must have pocketed over 4 billion yen in just a few months—enough to pay multiple young traders annual salaries of 50 million yen without blinking an eye.
Greed and wrongdoing exploit the blind spots of human weakness.
Japan’s leaders—my own classmates and seniors among them—fell into self-preservation and tunnel vision, clinging to tradition while despising equities, the very foundation of capitalism.
The result was Japan’s “Lost 20 Years.”
And as a consequence, one in seven Japanese citizens now lives in poverty.