What If the S&P 500 Does What Japan Did? Lessons From the Nikkei's 34-Year Wait
On the last trading day of 1989, Tokyo's stock market closed at 38,915.87 on the Nikkei 225. The mood in the city's brokerages was close to euphoric. Japan's stock market had just become the biggest on Earth. And almost nobody in that room imagined they would wait more than 34 years to see that number again.
They did. The Nikkei did not close above its 1989 record until February 22, 2024.
If you own an S&P 500 index fund today, that story probably makes your stomach tighten. American stocks have been on a long winning run. Prices are high. A handful of giant companies dominate the market. So the question is fair: what if the S&P 500 does what Japan did?
Here is the short answer, and then the whole story.
The short answer Yes, a long "lost decade" can happen to any single stock market, including America's. But the famous "34 years" only applies to someone who put all their money in at the exact top, in one country, and ignored dividends. Japanese investors who kept buying every year were back in profit long before 2024. Japan in 1989 was also far more expensive than the S&P 500 is today. The lesson is not "stocks are dangerous". It is: don't bet everything, all at once, on one market. |
In this article we will walk through what really happened in Japan, the real numbers behind the "34 years" headline, how today's S&P 500 compares, and a simple plan to make your own money Japan-proof.
In this article
The Day Japan Owned the World
To understand the crash, you first have to feel the madness that came before it.
In the late 1980s, Japan looked unstoppable. Its cars, cameras and electronics were taking over the world. Interest rates were low, banks lent freely, and money poured into shares and land.
The numbers from the peak are hard to believe today:
Seven of the world's ten most valuable companies were Japanese, according to the Associated Press. Today, none of them are.
Japan was about 40% of the developed world's stock market value, slightly more than the United States at about 36%, according to CME Group's senior economist Erik Norland.
The Nikkei traded at about 60 times its companies' yearly profits. Most markets usually trade nearer 15 times.
The grounds of the Imperial Palace in Tokyo were estimated to be worth more than all the real estate in California, as financial historian Edward Chancellor recorded in his book Devil Take the Hindmost.
The Nikkei had nearly tripled in four years, from about 13,000 at the start of 1986 to almost 39,000.
Many people borrowed against land to buy shares, and against shares to buy more land, The Christian Science Monitor warned in 1990.
What "60 times earnings" means If a company earns $1 of profit a year and you pay $60 for its share, it would take 60 years of profits just to earn your money back. Paying 15 times means 15 years. The higher the number, the more future growth you are paying for in advance. |
The restaurant owner and the ceramic toad
No story captures the mood better than that of Nui Onoue, an Osaka restaurant owner who became one of the biggest individual stock investors in Japan.
She was famous for her stock tips. According to the Financial Times, she would lead guests upstairs in her restaurant to a large ceramic toad, have them lay their hands on it, chant, and then hand out the toad's "advice". Bankers and brokers lined up for it.
Then she borrowed. And borrowed. Banks lent her staggering sums, some of it raised with forged deposit certificates. When prices fell, it all collapsed. Her bankruptcy left debts of about ¥430 billion, the largest ever run up by an individual in Japan, and in 1998 a Japanese court sentenced her to 12 years in prison for fraud, The Japan Times reported. The chairman of one of Japan's most powerful banks resigned over his bank's dealings with her.
It sounds like a joke. But it is a warning that never goes out of date: when people stop asking what something is worth and only ask how much higher it can go, the end is usually near. If you have ever felt that pull, our guide to the 7 signs you're gambling in the stock market, not investing is worth a read.
The Man Who Popped the Bubble
On December 17, 1989, a career central banker named Yasushi Mieno became governor of the Bank of Japan. He had watched the speculation grow for years, and he set out to cool it.
The Bank of Japan had already started raising its official discount rate from a record low of 2.5% in May 1989. Under Mieno it kept going: 4.25% on Christmas Day 1989, 5.25% in March 1990 and 6% by August 1990, according to Japan's Ministry of Finance.
Twelve days after he took office, the Nikkei hit its peak. Then the air came out:
1990: the Nikkei fell about 39% in a single year.
1990s: banks were buried in bad loans. They eventually wrote off about ¥100 trillion of them, the Associated Press reported.
2000 to 2002: the global dot-com bust pushed Japan down again.
March 10, 2009: in the global financial crisis, the Nikkei closed at 7,054.98, about 82% below its 1989 peak.
Then, slowly, things turned. From 2013, government policies under the late Prime Minister Shinzo Abe, cheap money, and a big push to make Japanese companies treat shareholders better helped lift prices. On February 22, 2024, the Nikkei closed at 39,098.68, finally above the 1989 record. Traders in Tokyo cheered. It had taken 34 years and two months.
Where is the Nikkei now? The story didn't stop in 2024. The Nikkei kept climbing, passed 72,000 in June 2026, and closed around 63,000 at the end of October 2026. Someone who bought at the 1989 top is now well ahead on price alone. It just took a generation. |
The "34 Years" Headline Is Only Half the Truth
Here is the part most articles skip. "34 years to break even" is true for exactly one kind of investor: someone who put all their money in on one day, at the very top, and never added another yen.
Almost nobody invests like that. Real people invest a bit at a time, from their salary, and they collect dividends along the way. Change those two things and the story changes dramatically.
Dividends shortened the wait
The Nikkei 225 number you see on the news is a price index. It does not count the dividends companies paid out every year.
CME Group's Erik Norland calculated returns from the end of 1989 to late 2024. On price alone, the Nikkei was down about 1% in yen. Including reinvested dividends, it was up about 54%. One analysis of the Nikkei's dividend-reinvested index found it passed its 1989 level around 2021, a few years before the price index did. The wait was still painfully long, but dividends quietly kept investors' money growing while the headline number went nowhere.
What happened to someone who kept investing
Now the most important example in this whole article. I ran the numbers myself using the Nikkei's year-end closing prices.
Imagine a Japanese worker who started investing at the worst possible moment: December 1989, at the exact peak. Every December after that, they put in another 1,000 (call it yen or dollars, the maths is the same). They never sold. And to be strict, I did not count a single dividend.
Year-end | Total put in | Worth | Gain or loss |
1992 | 4,000 | 2,881 | -28% |
2002 | 14,000 | 7,334 | -48% |
2005 | 17,000 | 17,685 | +4% |
2008 | 20,000 | 11,818 | -41% |
2013 | 25,000 | 29,362 | +17% |
2019 | 31,000 | 49,694 | +60% |
2023 | 35,000 | 74,960 | +114% |
2025 | 37,000 | 115,023 | +211% |
Source: my calculation from Nikkei 225 year-end closes. Price only, no dividends, fees or taxes.
Look at what happened:
The steady investor first got back into profit at the end of 2005, 16 years in, not 34.
The 2008 crash pushed them under water again, a brutal test of nerves.
From 2013 onward they stayed in profit, a full 11 years before the Nikkei's record.
By the end of 2023, still months before the Nikkei passed its 1989 peak, they had more than doubled their money. Over the same period, someone who invested a lump sum at the top was still about 14% down.
Same market. Same terrible starting date. Completely different result.
Why steady investing worked Every time prices crashed, the same 1,000 bought far more shares. In 2008 it bought more than four times as many shares as it did in 1989. When prices finally recovered, all those cheap shares paid off. A falling market is painful to watch, but for someone still adding money it is a sale. |
If you are sitting on cash after a bad loss and wondering how to put it back to work, we cover this in detail in Lump Sum or Monthly? How to Put Money Back Into the Market After a Big Loss.
Has America Ever Had Its Own "Japan"?
Yes. Twice, at least on paper.
The 1929 crash: 25 years, or about 7?
The Dow Jones Industrial Average peaked at 381.17 on September 3, 1929. It did not close above that level again until November 23, 1954, more than 25 years later.
But, as market researcher Mark Hulbert showed in The New York Times in 2009, that number misleads. Prices across America fell during the Depression, so each dollar bought more. Dividends were large. And the Dow was not the whole market. Using data from Ibbotson Associates, Hulbert found that once you count dividends and falling prices, the overall stock market was back to its pre-crash level by late 1936, about four and a half years after the 1932 low.
The 2000 to 2013 "lost decade"
The S&P 500 closed at a record 1,527.46 on March 24, 2000, at the height of the dot-com bubble. It took about seven years to get back there, then the 2008 financial crisis knocked it down by more than half again. It did not set a lasting new record until March 2013, 13 years after the 2000 peak.
Tech investors had it worse. The Nasdaq-100 fund QQQ took about 16 and a half years to recover its 2000 high, according to Dow Jones Market Data.
So long waits are not just a Japanese thing. They can happen in America. If you want to see how the S&P 500 behaved over every 20-year stretch since 1926, including ones that started right before big crashes, read Has the S&P 500 Ever Lost Money Over 20 Years?
Japan in 1989 vs the S&P 500 Today
Now the honest comparison. Where does today's American market look like Japan in 1989, and where does it not?
Japan, end of 1989 | S&P 500, autumn 2026 | |
Price vs 10 years of profits (CAPE) | about 93 | about 41 |
Price vs last year's profits | about 60 | about 26 |
Dividend yield | about 0.5% | about 1% |
Share of developed-world stock value | about 40% | US about 74% (2024) |
Top companies | 7 of world's top 10 | Top 10 firms about 39% of the index |
Central bank | Raising rates hard, up to 6% | Fed hiked in Sept 2026, now 3.75% to 4% |
Population | about to shrink | still growing |
Where it rhymes (the worrying part)
1. Prices are high. The S&P 500's CAPE ratio, which compares today's price with ten years of inflation-adjusted profits, was around 40 to 41 in October 2026. That is higher than almost every month since 1881 and close to its December 1999 dot-com peak of 44.2. High prices don't predict a crash next month. But history shows they have usually meant lower returns over the following decade.
2. One country owns the world. In 1989 Japan was the world's biggest stock market. Today it is America, and by an even bigger margin.
3. A few giants dominate. By the end of September 2026, the ten biggest companies made up about 39% of the S&P 500, a near-record level. When a few names carry the index, a stumble by those few hits everyone. We dug into this in The Mag 7 Lost the Race to the "Boring" 493 in 2026.
4. Interest rates are moving up again. The Fed raised rates in September 2026, its first hike since 2023, and markets expect more. Rising rates are what popped Japan's bubble.
Where it doesn't (the reassuring part)
1. Japan was more than twice as expensive. A CAPE of about 93 against about 41 is not a small difference. Investors in 1989 were paying roughly double today's already-high price for each dollar of long-run profit.
2. Japan's companies were living on cheap loans and land. Firms and people borrowed against land to buy shares, then against shares to buy land. When one fell, the other fell with it, and the banks choked on bad debts for a decade. Many of today's biggest US companies earn huge profits, much of it from customers all over the world.
3. Japan's economy and population stopped growing. Since 1989, Japan's real GDP grew about 40% and its population actually shrank slightly, according to CME Group. America's real GDP grew about 137% and its population rose by about 40%. More people and more spending give companies more room to grow into high prices.
4. Japan made a series of policy mistakes. Many economists argue that Japan kept bad loans hidden for years and was slow to support the economy after the crash, letting deflation take hold. Policymakers everywhere studied those mistakes, which is one reason the 2008 and 2020 responses were faster.
The fair conclusion Today's S&P 500 is expensive and concentrated, so a long, flat decade is a real possibility. A full 34-year Japan-style wait would most likely need prices far higher than today and a much deeper economic breakdown. Nobody can promise it won't happen. That's exactly why your plan should survive it, even if you never need it to. |
Worried that index funds themselves are the bubble? We tackled that head on in Are Index Funds a Bubble? What Michael Burry Warned, and What Happened Next.
6 Lessons From the Japanese Investors Who Came Out Fine
Not every Japanese investor was ruined. Here is what separated those who came through from those who didn't.
Lesson 1: Keep investing through the bad years
As the table above showed, steady monthly or yearly investing turned a nightmare into a solid result. The people who stopped buying after the crash locked in the pain. The ones who kept going bought cheap shares for two decades.
Lesson 2: Reinvest your dividends
In a flat market, dividends can be most of your return. Money for the Rest of Us host David Stein pointed out that from the 1989 peak to early 2024, essentially all of the MSCI Japan index's return came from dividends. If you spend your dividends, you give up that cushion.
Lesson 3: Own the world, not one country
A Japanese investor who owned only Japan suffered for decades. One who owned a global index fund still did well, because the rest of the world kept growing. As investment writer Ben Carlson has put it, the whole point of diversification is to avoid having all your money stuck in a Japan situation.
That doesn't mean dumping the S&P 500. It means not assuming one country will win forever. In 1989, plenty of people were sure it would be Japan. Our guide How Many Index Funds Should You Own? shows how simple a global mix can be.
Lesson 4: Hold some safe money
While Japanese shares went nowhere, boring Japanese government bonds paid off. Ben Carlson calculated that they returned over 6% a year from 1990 to 2015, far better than shares. A slice in bonds or cash means you never have to sell shares at the bottom to pay your bills.
Lesson 5: Never borrow to invest
Nui Onoue didn't just lose money. She lost everything, and dragged banks down with her, because she was borrowing. A crash hurts. A crash on borrowed money can wipe you out. If you are tempted to use margin or borrowed money, please read Why Smart People Lose Money in the Stock Market first.
Lesson 6: Crashes create bargains for patient people
In August 2020, with the Nikkei still below its 1989 peak, Warren Buffett's Berkshire Hathaway announced it had bought about 5% of each of Japan's five big trading companies, worth more than $6 billion at the time. Most of them traded below the value of their assets. Berkshire kept adding over the years, and by the end of 2025 those stakes were worth about $35.4 billion. The market everyone had given up on became one of Buffett's best late-career bets.
You don't need to be Buffett. But if you keep investing regularly, you automatically buy more when everyone else is too scared to.
Your Japan-Proof Plan: 7 Steps to Take This Week
You can't control whether the S&P 500 has a lost decade. You can control whether it ruins you. Run through this flowchart, then the checklist below.
Check how much is in one country. Look at your total investments. If it is all in US shares, consider adding a global or world-ex-US index fund so you are not betting everything on one market.
Set up an automatic monthly investment. A fixed amount on a fixed day, whatever the news says. This is the single habit that saved Japan's steady investors.
Turn on dividend reinvestment, or choose an "accumulating" fund that reinvests for you.
Separate money you need soon. Anything you will need within about 5 to 10 years doesn't belong in shares. Keep it in bonds, fixed deposits or cash.
Clear investment debt. No margin, no loans to buy shares, no leveraged ETFs for your core money.
If you're near or in retirement, plan your withdrawals. A long flat market is most dangerous when you are selling to live. Our guide to the 4% rule explains how to set a safer withdrawal rate.
Write down your plan and when you will review it. Once a year is enough. A written plan is what stops you from panic-selling when the headlines turn ugly.
If you're over 50 Your biggest risk isn't a 34-year wait. It's being forced to sell during a crash because you need the money. Keep a few years of spending outside the stock market and the rest can afford to wait. |
What If It Happens Anyway?
Suppose the worst. The S&P 500 falls hard and stays below its peak for ten years or more. What then?
If you followed the plan above, here is what you would actually be doing: still buying every month at lower prices, still collecting dividends, drawing living money from your bonds and cash, and watching the rest of your global portfolio carry part of the load. Painful? Yes. Ruinous? No.
The investors who were truly destroyed in Japan made the same mistakes again and again. They went all in at the top. They borrowed. They owned only their own market. They sold in despair near the bottom. Those are choices, and you can choose differently today.
If the market has already hurt you once and you are scared of it happening again, read How Long Does It Take to Recover From a 50% Stock Market Loss? The maths is sobering, and it shows exactly why protecting yourself from a big loss matters more than chasing a big gain.
Frequently Asked Questions
Why did the Japanese stock market take 34 years to recover?
Because it started from one of the biggest bubbles in history. In 1989 the Nikkei traded at about 60 times earnings, then rising interest rates burst it. Banks were buried in about ¥100 trillion of bad loans, the economy stagnated and prices fell for years, so profits needed decades to catch up with those prices.
Could the S&P 500 have a 34-year lost period like Japan?
It is possible for any single market, but less likely. Japan's 1989 CAPE was about 93 versus about 41 for the S&P 500 in October 2026, and America's economy and population are still growing. A flat decade is a real risk at today's prices. A 34-year wait would likely need a much deeper breakdown.
Did Japanese investors really wait 34 years to break even?
Only those who invested a lump sum at the exact top and ignored dividends. With dividends reinvested, the wait was several years shorter. Someone investing a fixed amount every year from the 1989 peak was back in profit by 2005, and stayed in profit from 2013, using price data alone.
Is the S&P 500 in a bubble like Japan in 1989?
It is expensive, but not at Japan's level. The S&P 500's CAPE was around 40 to 41 in October 2026, near its 1999 dot-com peak of 44.2 but less than half of Japan's roughly 93 in 1989. High prices have historically meant lower returns over the next decade, not a guaranteed crash.
How can I protect my investments from a Japan-style crash?
Invest a fixed amount regularly, reinvest dividends, own a global mix rather than one country, keep money you need within 5 to 10 years in bonds or cash, and never borrow to invest. These are the habits that let Japanese investors come through the lost decades in good shape.
Where is the Nikkei 225 today?
After passing its 1989 record in February 2024, the Nikkei kept rising, went above 72,000 in June 2026 and was around 63,000 at the end of October 2026. Investors who bought at the 1989 top are now ahead on price alone, but it took more than a generation.
The Real Lesson From Japan
Japan's 34-year wait is real, and it should humble anyone who thinks stocks only go up. But look closely and the story isn't about stocks failing. It's about people paying any price, betting everything on one market, borrowing to do it, and quitting at the bottom.
The quiet Japanese worker who kept investing a little every year, reinvested the dividends and never borrowed came out ahead, even though they started on the worst day in their country's market history.
You can be that investor. Not by predicting the next crash, but by building a plan that doesn't need you to.
If you have lost money in the stock market before and want to understand exactly why it happened, and how to stop it happening again, download my free report.
Free report: "Why You Lost Money in the Stock Market (And Why It Wasn't Your Fault)". 38 pages, plain English, no jargon. It shows the traps Wall Street sets for ordinary investors and the simple index plan that avoids them.
About the Author
Stephen Loke has been a student of the market for more than 15 years. He is also an agritourism entrepreneur whose farm has been featured in Bloomberg News and Asahi Shimbun.
This article is general education, not personal financial advice. I'm not a licensed financial adviser. Past performance does not guarantee future results. Please consider your own situation, or speak with a licensed adviser, before making investment decisions.
Sources
Reuters / Business Today, "Nikkei parties like it's 1989; scales record high", Feb 22, 2024: https://businesstoday.in/markets/global-markets/story/nikkei-parties-like-its-1989-scales-record-high-418482-2024-02-22
Associated Press via The Globe and Mail, "Japan's Nikkei stock index breaks its 1989 record and surges to an all-time high", Feb 22, 2024: https://www.theglobeandmail.com/investing/investment-ideas/article-japans-nikkei-stock-index-breaks-its-1989-record-and-surges-to-an-all/
Associated Press via Gulf News (top 10 companies, older investors' reluctance), Feb 22, 2024: https://gulfnews.com/business/markets/japans-nikkei-stock-index-breaks-its-1989-record-and-surges-to-an-all-time-high-1.1708605042025
Erik Norland, CME Group, "Is Japan's Nikkei 225 Still a Bargain?", Nov 25, 2024: https://www.cmegroup.com/insights/economic-research/2024/is-japans-nikkei-225-still-a-bargain.html
Man Group, "Japan Stock Market Record – Why it's Not Bubble 2.0", Feb 27, 2024: https://www.man.com/insights/views-from-the-floor-2024-february-27
Ben Carlson, A Wealth of Common Sense, "The Greatest Bubble of All-Time?" (citing Edward Chancellor, Devil Take the Hindmost), 2016: https://awealthofcommonsense.com/2016/09/the-greatest-bubble-of-all-time/
The Christian Science Monitor, "Japan's Market Bubble", Mar 28, 1990: https://www.csmonitor.com/1990/0328/enippon.html
Invesco, Paul Jackson, "Uncommon truths: Nikkei at 40,000?", Feb 2021 (Japan CAPE of 93 in Dec 1989): https://invesco.com/uk/en/insights/uncommon-truths-nikkei-at-40000.html
Japan Ministry of Finance, Policy Research Institute, official discount rate table 1983–1991: https://www.mof.go.jp/english/pri/publication/policy_1972-1990/Chapter3-2.pdf
Nui Onoue (Japan Times, Mar 2, 1998, via Wikipedia): https://en.wikipedia.org/wiki/Nui_Onoue
Financial Times story on Nui Onoue's ceramic toad, via Museum of Hoaxes, 2002: https://hoaxes.org/weblog/comments/the_celebrated_ceramic_toad_of_osaka
Nikkei 225 year-end closing prices (Yahoo Finance data), MarketsGrid: https://marketsgrid.com/nikkei-225-history
Trading Economics, Nikkei 225 close Oct 30, 2026: https://tradingeconomics.com/japan/stock-market
Mark Hulbert, The New York Times, "25 Years to Bounce Back? Try 4½", Apr 25, 2009: https://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html
Barron's / Dow Jones Market Data, "The Dot-Com Bubble Peaked 25 Years Ago Today", Mar 24, 2025: https://www.itiger.com/news/2522725700
Wikipedia, Closing milestones of the S&P 500: https://en.wikipedia.org/wiki/Closing_milestones_of_the_S%26P_500
Shiller CAPE data, October 2026 (Robert Shiller data via The Trading Tools): https://www.thetrading.tools/shiller-cape
Multpl Shiller CAPE (Oct 2026 daily estimate), via Finnovate: https://www.finnovate.in/learn/blog/shiller-cape-ratio-us-stock-market-2026
S&P 500 trailing P/E, October 2026: https://buffettindicator.org/pe-ratio
S&P 500 top-10 weight (S&P Dow Jones Indices data, Sept 30, 2026): https://www.kucoin.com/blog/ae-nvidia-apple-and-microsoft-sp500-concentration
Federal Reserve decision Oct 28, 2026, Advisor Perspectives: https://www.advisorperspectives.com/dshort/updates/2026/10/28/feds-interest-rate-decision-october-28-2026
Money for the Rest of Us, Episode 468, "Lessons from Japan's 34 Years of Stock Market Underperformance": https://moneyfortherestofus.com/468-japans-34-year-market-underperformance/
Reuters via Mining.com, "Buffett looks to Japan with $6bn bet on trading firms", Aug 31, 2020: https://www.mining.com/web/buffett-looks-to-japan-with-6bn-bet-on-trading-firms/
Jiji Press via Adnkronos, "Berkshire Stakes in 3 Japanese Trading Houses Exceed 10 Pct", Mar 1, 2026: https://english.adnkronos.com/2026/03/01/berkshire-stakes-in-3-japanese-trading-houses-exceed-10-pct/
The Dividend Growth Investor, "Lessons from the Japanese Stock Market Bubble", 2022: https://www.dividendgrowthinvestor.com/2022/08/lessons-from-japanese-stock-market.html
Comments