The Japanese stock market has recently skyrocketed: the Nikkei 225 has risen for six consecutive trading days, with the index soaring from 33,000 points all the way to 35,900 points, marking an impressive 9% increase. At the same time, each of these six trading days has broken the 34-year record high for the Japanese stock market, making it an exhilarating period.

In comparison to the Japanese stock market, the recent performance of our domestic A-shares can only be described as embarrassing. Some people say that the Japanese stock market has suddenly risen to prominence, which is truly enviable. However, I must inform everyone of a fact: the Japanese stock market did not just rise recently. By the time people noticed that the Japanese stock market seemed to be doing well, it had already been on a long-term upward trend for over a decade.

We need to understand that after the collapse of the Japanese stock market in 1990, it continued to decline; by 2010, it reached its lowest point (10,000 points). Since then, the Japanese stock market has bottomed out and rebounded, experiencing a long-term uptrend.

As of today, the Nikkei 225 index has rebounded to 35,900 points, a 259% increase; even compared to the peak of 38,900 points on December 29, 1989, the Nikkei 225 index has recovered 92%. It is just a few consecutive rises away from fully recovering or surpassing its previous peak.

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The question arises: since 2010, Japanese industries have continued to shrink, with mobile phones, white goods, shipbuilding, machinery, and display technologies being completely outperformed by China and South Korea; the remaining automotive industry is also facing a severe challenge from Chinese electric vehicles; its real economy is clearly performing poorly, so why can the Japanese stock market continue to rise significantly?

The key to the issue is that while Japan's physical industries have declined, at the same time, the debt burden of Japanese households has also significantly decreased.

After researching relevant materials, the Tenth Economic Observation Room found that in 1980, the ratio of total household debt to annual income in Japan (hereinafter referred to as the household leverage ratio) was only 77%; however, after the continuous borrowing for housing and stock speculation by the Japanese in the 1980s, by 1990, the household leverage ratio in Japan soared to 132%.Over the span of a decade, the pressure of debt has doubled, which is simply madness. During this time, many Japanese households were burdened by heavy debts, bending their backs and leaving them powerless to take on the soaring housing and stock prices. They could only sell off stocks and dispose of real estate, which was one of the core reasons for the dual collapse of the Japanese housing and stock markets in 1990.

What followed was a long-term downturn in the Japanese stock market and real estate, a period commonly referred to as the "Lost 20 Years" (1990-2010). During these two decades, time was continuously consumed in digesting the economic disaster brought about by the housing and stock market bubbles; yet, it was also a time of continuously cleansing the high debts of Japanese households.

Due to the continuous decline in housing prices and the persistent drop in stock prices, Japanese households no longer pursued these so-called wealth-building tools and assets; young people, in particular, completely gave up, not being tied down by houses, choosing not to marry or have children, and refusing to borrow or consume excessively. This allowed Japanese households to focus their income on repaying debts, alleviating the high debt issue among Japanese households.

After 2005, the leverage ratio of Japanese households began to decline significantly (at this time, many households had paid off their 15-20 year mortgages); by 2010, the leverage ratio of Japanese households had dropped to 116%, with the debt burden noticeably reduced.

More importantly: compared to 1990, Japan in the 2010s, including public social welfare such as education, rent, healthcare, and elderly care, was much better. This made the debt burden on Japanese households appear even more relaxed than the decline in leverage ratios.

Now that the pressure to repay debts has been alleviated and there is a safety net of public welfare, some Japanese people have started to use their money to buy houses and stocks again; as a result, both housing and stock prices in Japan have begun to rebound significantly after 2010, especially after 2015.

Humanity is essentially a cycle, and the lesson they learn from history is that they never learn from history. As soon as life recovers a bit, they again pursue the so-called appreciation of wealth, buying stocks and houses; it seems they have forgotten that the last dual collapse of the Japanese housing and stock markets was less than 20 years ago.Nevertheless, the significant decrease in household leverage in Japan and the establishment of public welfare are one of the internal reasons for the recent rise in the Japanese stock market, and indeed the most important reason. As for the influx of a large amount of European and American capital, based on exchange rate differences (buying after the yen has significantly depreciated and selling after the yen has significantly appreciated) and geopolitical risk aversion, it is the external cause of the recent surge in the Japanese stock market.

Internal factors are the basis of change, while external factors are the conditions for change, with external factors acting through internal ones. We must understand that changes in Japan's internal economy, especially the reduction of household debt burdens, are the most important reasons for the rise of the Japanese stock market.

If we compare the changes in the Japanese stock market over the past 30 years (since 1990) to our current large A-share market, we will find a harsh reality: due to the high housing prices over the past decade or so, the proportion of total household debt to annual income in China has also reached a peak.

In 2010, the proportion of our residents' total debt to annual income was only 35%; by 2022, this ratio had reached an astonishing 124%; it tripled in 12 years, even more rampant than Japan in the 1980s.

And a leverage ratio of 124% is only slightly less than Japan's 132% in 1990.

Therefore, excessive household debt, or leverage ratio, will be the biggest resistance to the rise of the domestic stock market in 2024 and even in the next few years. Those who are still hoping for a rapid rebound in the domestic stock market should think twice about their investments in the next few years.

After all, economic laws are economic laws and do not change according to anyone's will. When a large part of many people's annual income is used to repay debts, even if they have the intention to invest in the stock market, they do not have the ability.