Why don't Japanese people buy into the bull market in Japanese stocks?

I. Nearly a Decade of Bull Market in Japan and Europe: Japanese Skepticism vs European Confidence

Bull market after 2012: Europeans increase allocation, while Japanese remain unconvinced. In "The Long Season: A Visual Guide to Japanese and European Asset Allocation in the Low Interest Rate Era - Low Interest Rate Era Series 1", the performance and behavioral characteristics of the capital markets in Japan and Europe have been almost diametrically opposed: the Japanese stock market and real estate prices have been in a "lost two decades", while the overall European stock market rapidly declined and bottomed out after the European debt crisis, followed by a decade of overall volatile upward movement. However, even after the Japanese stock market entered an upward trend after 2012, Japanese residents did not increase their equity allocation, continuing to embrace certainty, with the proportion of equities and funds in financial assets remaining at a low level of around 13-14%, while the proportion of currency and deposits continued to increase from 52.5% in 2013 to 55% in 2022; meanwhile, European residents continued to increase their equity holdings throughout the entire low interest rate era after 2012, with the proportion of equities and funds increasing from 23% at the beginning of 2012 to 30.6% at the end of 2021, while the proportion of currency and deposits remained slightly lower at around 35%.

II. Disappearance of Wealth Effect in Japanese Stocks: Deterioration of Risk Preference and Exit of Players in the Long Bear Market

In the prolonged bear market, risk preference in Japanese stocks continues to deteriorate. The most straightforward explanation for not buying even when the stock market is rising is that Europe and Japan experienced bear markets at different times. Europe experienced a continuous decline in the stock market for about 1 year after the subprime crisis, and about half a year after the European debt crisis; while Japan faced a long 20-year bear market after the burst of the stock market bubble in 1990. The direct consequence of long-term lack of positive returns on assets is the continuous deterioration of risk preference. Calculated based on the overall PE of the Japanese stock market and the 10-year Japanese government bond yield, the Japanese stock market's ERP has been continuously increasing since 1990, even during the continuous upward trend of the Japanese stock market after 2012, the ERP increased from 3.1% to around 7% in 2019 In the major European markets, apart from the "lagging behind" economy of Italy, the stock markets of relatively stable economies such as Germany and France have basically remained stable. The ample global liquidity post-2020 pandemic has pushed the stock markets to historical lows since 2012.

Japanese residents are unwinding their positions, and young people are staying away from Japanese stocks. An interesting phenomenon is that as the Japanese stock market bottomed out and rebounded in 2012, Japanese residents accelerated their exit. The outflow of funds from listed company stocks held by Japanese households has been steeper than during the "lost 20 years" period. We understand that behind this is the gradual unwinding of investors who were "trapped" at the peak of the Japanese stock market bubble as the net asset value of stocks they held returned, leading to selling behavior. One piece of evidence is that in 2021, the age group with the highest proportion of stocks in the financial asset allocation of Japanese residents is those aged 60 and above, with stocks accounting for 14-15% of their financial assets, while the proportion of stocks held by those aged 60 and below is mostly below 10%, and the proportion of stocks held by the younger age group of 20-29 is only 2.5%. Japanese young people born after the bubble burst in 1990 have almost not entered the stock market.

Financial institutions are moving assets overseas: Insurance funds, banks increase overseas asset allocation, reduce exposure to Japanese stocks. In a low-interest rate environment, insurance funds, banks, and other financial institutions naturally have a demand for thick asset allocation. However, despite the overall upward trend of the Japanese stock market after 2012, Japanese insurance companies and banks have not increased their allocation to stock assets but have turned their attention overseas From 2007 to 2018, the proportion of overseas investments by life insurance companies increased from 19% to 40%; in the asset allocation structure of banks, the proportion of overseas securities investments from 1993 to 2019 increased from 1.8% to 5%, basically offsetting the decline in the proportion of stock investments. Even in the rising environment of the Japanese stock market, domestic financial institutions have not become the main players in the market.

The most active traders in the Japanese stock market: overseas investors. In terms of trading activity, overseas investors are the most important participants in the Japanese stock market, with the trading volume accounting for around 70% since 2014. Next are individual investors, but their trading volume has been shrinking from 21% in 2014 to 17% in 2019.

Increase in passive investments: Central banks may be the largest buyers. Since 2012, passive investments have become popular in the Japanese stock market, with ETF trading volume increasing from 0 to around 10%. The largest buyer among them may be the Bank of Japan. As part of the Abe government's QQE policy, the Bank of Japan has been increasing its holdings of ETFs since 2012, gradually becoming the main net buyer in the Japanese stock market. In 2021, the Bank of Japan's holdings of ETFs accounted for around 7% of the total market value of the Tokyo Stock Exchange.

III. Root Cause - Who is Most Affected in the Crisis: Damage to the Japanese Private Sector vs. Credit Damage to European Governments

(1) Japanese Economic Bubble: Both the Rise and the Injured Parties are in the Private Sector

Behind the rise in risk premiums in the Japanese stock market and the withdrawal of the private sector from domestic risk assets, the deeper reasons may need to be traced back to the origin and affected sectors of the crisis

Bubble Boosting Subject: Corporate Sector. After 1985, the stock and real estate bubbles in Japan, while benefiting from the ample liquidity brought by loose monetary and fiscal policies, were mainly driven by the corporate sector: under loose credit conditions, corporations obtained more debt from banks, used it to purchase assets such as land and securities, and then used these new assets as collateral to obtain even more debt. During the booming period of the Japanese stock and real estate markets from 1980 to 1990, the leverage ratio of the corporate sector surged from 94% to 139% (an increase of 45 percentage points), while the household sector saw an increase from 45% to 68% (an increase of 23 percentage points). The cycle of corporations, especially the corporate sector, leveraging up and using assets to secure loans, became a microcosm of the accumulation of asset price bubbles.

Corporate Behavior After the Bubble Burst: Accelerated Bankruptcy and Transition from "Borrowing" to "Saving". In 1989, the Bank of Japan began to raise interest rates, leading to the bursting of the economic bubble. The sharp decline in real estate and stock prices resulted in a loss of ¥150 trillion, equivalent to the sum of Japan's domestic GDP over three years, according to Gu Chaoming. Faced with the drastic drop in asset prices, highly leveraged corporate entities gradually went bankrupt in the 1990s. The number of bankruptcies in Japan was less than 14,000 in 1994, but rose to nearly 20,000 around 2000, and has been declining since 2003. Surviving companies, in order to avoid technical bankruptcy at the financial statement level, i.e., the exposure of the "insolvent" problem, chose to use their profits to repay debts. Major Japanese companies have been repaying debts since 1996, leading to the corporate sector gradually becoming net savers after 1996, ceasing to absorb investments from society and using their own funds to repay debts. The leverage ratio of the corporate sector declined continuously from its peak of 145% in 1993 to below 100% in 2004. The transition of the corporate sector from borrower to saver, the reversal of fund surplus from deficit to surplus, ultimately led to the "composition fallacy" at the societal level. According to Gu Chaoming's estimation, the deflationary impact caused by the transition of corporations from borrowers to savers from 1991 to 2004 exceeded 20% of Japan's GDP (the financial deficit accounted for 11.4% of GDP in 1991, while the financial surplus accounted for 10.2% of GDP in 2004).

Impact on the Household Sector: Decrease in Employment & Income, Depletion of Savings, and Downward Risk Bias. As corporations experienced a "balance sheet recession," with increased savings and reduced investments, not only did this lead to a decrease in total demand at the societal level, but it also resulted in reduced employment and lower wages for residents. Consequently, residents continued to reduce savings to pay for essential expenses such as housing and education, reflected in the continuous decline in Japan's overall savings rate and the fund surplus of the household sector from 1991 to 2014, with the domestic total savings rate dropping from 37% to 22% of GDP Residents' savings consumption has become one aspect supporting the basic stability of Japan's Gross Domestic Product (GDP) (the other aspect comes from the government's fiscal expansion to take over the leverage of the private sector), but stable expected expenditures, coupled with declining income expectations, have also made the continuous decline in Japanese residents' risk appetite reasonable.

(II) Eurozone Debt Crisis: Sovereign Debt Crisis and Banking Crisis in Some Countries

The Eurozone debt crisis is somewhat similar to local fiscal crises in different regions within the same currency system. The fundamental reason lies in the contradiction between the dual structure of monetary policy and fiscal policy in the Eurozone. After some countries experienced sustained countercyclical fiscal expenditures, long-term fiscal imbalances led to the highlighting of fiscal vulnerabilities, mainly spreading through the banking system within Europe.

Triggering factors: The tail risk of the U.S. subprime mortgage crisis erupted in the form of a sovereign debt crisis. The trigger for the Eurozone debt crisis was the transmission of tail risks from the U.S. subprime mortgage crisis. The triggering factors for different countries' crises are not exactly the same: Greece's crisis stemmed from a decline in tourism income leading to an imbalance in international payments, while Ireland and Spain's crises were mainly due to the bursting of asset bubbles caused by the U.S. subprime mortgage crisis, which then triggered private debt risks for households and financial institutions. However, the root cause of the risk eruption lies in the contradiction between the dual structure of monetary policy and fiscal policy in the Eurozone, with some countries having long-standing fiscal imbalances. In 2013, the general government debt/GDP ratio of the "PIIGS" (Portugal, Italy, Ireland, Greece, Spain) mostly exceeded 100%, with Greece approaching nearly 180%. The economic recession risks brought by the subprime mortgage crisis in European countries further propelled their fiscal expansion, and the issue of fiscal vulnerability eventually surfaced in the form of a sovereign debt crisis. The outbreak of the Eurozone debt crisis was marked by the downgrade of Greece's sovereign credit debt rating by the three major international rating agencies in 2009/10 Scope of Impact: From sovereign debt crisis to banking crisis, mainly affecting the fiscal system and financial system. The European debt crisis spread widely within the economies of Europe, eventually evolving into a negative chain reaction between the fiscal system and the financial system. The risk experienced a continuous spread from individual countries that were initially hit hard by subprime mortgages (such as Greece, Ireland) to fragile balances (Italy, Spain), and even to core countries of the Eurozone (France, Germany). The core reason behind this lies in the interconnectedness of financial markets in the Eurozone, where financial institutions of various countries hold each other's debts. For example, the major foreign investors in Spanish government bonds are France and Germany, and the important buyers of Italian sovereign debt are Societe Generale of France. The outbreak of risks in Italian sovereign debt led to a downgrade in the rating of Societe Generale, which in turn affected France's sovereign credit.

Private Sector: Relatively limited impact. European corporate sectors did not show a continuous increase in bankruptcies after the crisis. Only Spain saw a more noticeable increase in bankruptcies of companies from 2008 to 2012, while core countries like France and Germany maintained relatively stable numbers of bankruptcies. The savings rate of households did not exhibit a continuous decline similar to Japan, and even the savings rates of the "PIIGS" countries showed varying degrees of increase after 2012. In terms of leverage, there was a more noticeable behavior of households saving and corporate sectors borrowing. The leverage ratio of non-financial enterprises increased from 96% at the end of 2008 to 110% in March 2015, while the leverage ratio of households slightly decreased after 2011, from 64% at the end of 2010 to 57% in 2019, remaining relatively stable. This contrasts with the significant deflation phenomenon caused by Japanese companies transitioning from borrowing to saving after the bursting of the bubble.

IV. Decision-making Response: Japan's policy wavering for twenty years led to internal injuries, while Europe's rapid intervention smoothed out the scars. (1) After the Burst of the Japanese Bubble: Policy Lag, Fiscal Swings

Japan's monetary and fiscal policies were relatively lagging in response to the burst of the bubble, specifically:

Monetary Policy: Taking one step at a time in the early stage, with interest rates close to zero in 1995, and unconventional measures after 2000. The stock market bubble in Japan burst at the end of 1989, followed by the burst of the real estate bubble at the end of 1990. However, from 1990 to 1991, Japan's GDP growth rate was still acceptable. Both the Bank of Japan and the government did not realize the impact of the sharp drop in asset prices on the balance sheets of Japanese companies and residents. The central bank even raised interest rates twice in 1990 before starting a rate-cutting cycle in 1991. From 1991 to 1995, there were 9 consecutive rate cuts, with the rate dropping to an extremely low level of 0.5% in September 1995, nearly 5 years after the burst of Japan's economic bubble. However, companies still did not borrow but continued to repay debts to repair their balance sheets. After 2000, despite the extremely low interest rate levels, Japan's economic recovery still lacked substance and gradually fell into a deflationary background. The Bank of Japan further lowered interest rates to "zero interest rates" and even "negative interest rates" while continuously introducing unconventional monetary policies such as quantitative easing (QE), qualitative and quantitative easing (QQE), and yield curve control (YCC). Overall, Japan's initial rate-cutting actions were somewhat delayed and not decisive enough. There were also some fluctuations in the process of moving towards "zero interest rates" and introducing QE for the first time around 2000. It wasn't until 2012 when Abe's "three arrows" were introduced that the central bank embarked on an unprecedented easing path to escape deflation.

Fiscal Policy: Oscillating between easing and tightening. Compared to monetary policy, Japan's fiscal policy response was more sluggish. It wasn't until 1992, after Japanese authorities acknowledged that the Japanese economy had entered a period of economic downturn, that they began to implement economic stimulus fiscal policies centered on expanding public investment. From August 1992 to September 1995, a total of 7 national emergency or comprehensive economic measures were introduced, with a total scale of 73 trillion yen. However, due to concerns about the alertness of both official and private sectors to re-inflate asset bubbles and the unsustainable fiscal deficit, Japanese authorities quickly shifted to a tightening fiscal policy after signs of economic recovery emerged in 1996-97, including raising the consumption tax rate and advancing the "Fiscal Reform Law." Following the impact of the 1997 Asian financial crisis, the Japanese government once again turned to an active fiscal policy from 1998 to 2000, with the total scale corresponding to the 4 national economic measures reaching 62 trillion yen, leading to a significant expansion of the fiscal deficit. In 2001, as the Japanese economy gradually recovered from the impact of the Asian financial crisis and the burst of the dot-com bubble, Junichiro Koizumi took office and began to promote fiscal structural reform by cutting fiscal expenditures for fiscal reconstruction. The fiscal policy once again tended towards tightening, with almost no implementation of national fiscal stimulus measures except for responding to unexpected events such as the 9/11 terrorist attacks in the United States.

Until the outbreak of the 2008 U.S. subprime mortgage crisis, Japan once again embarked on a large-scale fiscal expansion, introducing various economic measures nine times with a total scale of 213 trillion yen to cope with the rapidly deteriorating economic situation. The Japanese authorities, due to the delayed recognition of domestic economic recession after the bursting of the Japanese economic bubble, as well as the fiscal policy fluctuations caused by political instability, exacerbated the impact on the private sector in Japan, leading to a "double blow" as private sectors fell into balance sheet recession and risk appetite was exhausted. Even with Abe's introduction of the "three arrows" and a significant opening of monetary and fiscal easing to drive moderate recovery of the Japanese economy, the corporate sector lost the most precious animal spirit of innovation, and the private sector's participation in risk assets noticeably weakened.

（II）After the Eurozone Debt Crisis: From Rapid Divergence to Consensus, Ensuring the Euro System Does Not Collapse

During the Eurozone debt crisis, the EU, ECB, and IMF cooperated closely, with policy interventions being relatively timely. At the beginning of the Eurozone debt crisis, it manifested as a regional fiscal crisis of heavily indebted countries represented by the "PIIGS." Internally within the Eurozone, on one hand, countries underestimated the crisis, and on the other hand, there were significant divergences in interests and basic concepts among member countries, making it difficult to reach a consensus on whether to assist problem countries, as well as the method and extent of assistance. This also became one of the reasons for the early spread of the European crisis. However, ultimately, the EU's EFSF (European Financial Stability Fund) / ESM (European Stability Mechanism) and the ECB's OMT (Outright Monetary Transactions) nested and coordinated with each other, achieving a relatively good intervention effect. In particular, Germany's shift from a passive response to calls from EU countries for assistance to an active intervention played a crucial role. The core of the shift was that Germany ultimately leaned towards the former in the balance between bearing the cost of assistance and the risk transmission of heavily indebted countries, and even the impact of the disintegration of the euro. Specifically, the focus of European direct debt relief for heavily indebted countries varied at different stages:

Stage One, Sovereign Debt Crisis in Heavily Indebted Countries: EU & IMF provided temporary assistance, with a focus on Germany's contribution. In May 2010, the EU and IMF cooperated to establish the temporary rescue fund EFSF totaling 750 billion euros (with a 3-year validity, and a larger permanent assistance fund ESM established in February 2012), providing liquidity support, credit support, and debt guarantees to heavily indebted countries such as Greece, Ireland, and Portugal facing sovereign debt and liquidity difficulties. Germany made a significant contribution, with the Eurozone collectively contributing 4.4 trillion euros out of the 7.5 trillion euros in the EFSF, with Germany subscribing to the largest share of 123 billion euros In September 2011, the German Federal Parliament passed the EFSF reform plan, increasing the guarantee amount to 211 billion euros; the establishment of the ESM also saw active promotion by Germany at the 2011 EU Spring Summit.

Phase Two, Banking Crisis: ECB Injects Liquidity into the Banking System. Draghi took office as the ECB President at the end of 2011, and the measures taken by the ECB mainly focused on injecting liquidity into the banking system. This included conducting two Long Term Refinance Operations (LTRO) providing 489.2 billion euros and 529.5 billion euros respectively to 523 and 800 European banks, with low-interest loans lasting for 3 years.

Phase Three, Euro Crisis: ECB's OMT Plan, Unlimited Bond Purchases. The crisis further spread to core countries such as Germany and France, posing a risk of disintegration to the Eurozone. The ECB implemented the OMT operation, purchasing heavily indebted countries' bonds meeting EFSF assistance conditions without limits in the secondary market to provide liquidity support, gradually stabilizing the financial markets.

Conditions and Results of the Top Student's Aid: Aided parties undergo fiscal austerity & reforms, Germany's economic status improves. It is worth mentioning that while actively participating in the assistance to peripheral countries, Germany also made institutional requirements, repeatedly emphasizing that heavily indebted countries should overcome the debt crisis through fiscal austerity and structural reforms. This includes reducing deficit rates, cutting welfare expenditures, ensuring future fiscal sustainability, restructuring domestic banks, extending retirement age, etc. As a result, after the Eurozone debt crisis, Germany's position in EU economic governance and external relations was further enhanced, with Germany's actual GDP weight within the EU increasing from 26.5% to 28.3% from 2009 to 2014.

V. Insights: How to Avoid Residents' "Ten-Year Fear of the Well Rope"?

（I）Sources of Market Wealth Effect: Long-term funds as a foundation, diverse investment tools

1) Bear markets should not last too long, policy support is necessary for confidence restoration. The start of the era of low interest rates in Europe and Japan was accompanied by economic crises and the bursting of asset price bubbles. After experiencing the "Lost Two Decades" in the stock market, Japanese residents, with their risk appetite exhausted, still chose to avoid the new round of stock price increases. Existing investors sold off, and new investors did not enter the market. Former Bank of Japan Governor Shirakawa mentioned his understanding of comprehensive monetary easing, where the interest rate level for private sector financing can be decomposed into risk-free government bond rates and risk premiums. Based on the consideration of reducing risk premiums, the Bank of Japan began purchasing various private assets including stock market ETFs under the policy direction of "comprehensive monetary easing" after 2010, This also became the most important incremental funds in the Japanese stock market's upward trend after 2012.

2) Emphasizing investor returns, residents' entry requires wealth effects. During the process of asset price recovery after a decline, residents tend to sell off rather than increase their positions. Based on the behavior of domestic fund investors since 2010, there is a tendency to accelerate redemptions during the rebound phase after a decline. This is particularly evident in periods such as post-2015 bear market, the market uptrend in 2017, the second quarter of 2019 after the market downturn in 2018, and during the market rebound in the first half of this year. Residents tend to enter the market after a significant wealth effect is demonstrated. Following the strong upward trend in the Japanese stock market since 2020, residents have largely stopped selling off in 2021, and the household sector's holdings of listed company stocks are showing signs of bottoming out.

3) Strengthening investment advisory services, diversifying residents' market entry tools. The trapped positions at the peak of the 1990 Japanese bubble not only continued to unwind over the next 30 years but also dealt a significant blow to the enthusiasm of later market participants. During the market rebound after the 2015 bear market in China, there was also a significant increase in the redemption rate of new funds. Residents entering the market heavily at the peak of a bull market not only amplify market volatility but also lead to a deviation in residents' fund-holding experience. The root cause of this phenomenon lies in the singular nature of residents' investment tools in the stock market. Strengthening investment advisory services, expanding supply, and introducing diversified allocation channels such as stocks, funds, annuities, trusts, etc., tailored to residents with different investment horizons and risk preferences, are necessary measures to avoid residents being trapped by funds at the peak of a bull market.

(II) Corporate Behavior: Beware of the Transition from "Borrowing" to "Saving," Provide Timely Assistance, and Encourage Dividends

Differences in European and Japanese crises: Corporate sector behavior is more critical. In the transmission process of economic crises in Japan and Europe, a major difference may lie in the non-financial corporate sector. The main body of the Japanese bubble and crisis transmission is the corporate sector, while in Europe, it comes more from the government and financial institutions. Although Spain and Ireland experienced asset price collapses, the high household debt background also led to a rapid transmission of the crisis to financial institutions. According to Gu Chaoming's theory of balance sheet recession, in an ideal economic situation, residents should be the net saving sector, while companies should be the net investment sector, i.e., existing as borrowers. However, in the balance sheet recession phase, companies transition from borrowers to savers, leading to reduced fundraising, drastic changes in corporate behavior, ultimately resulting in a decline in residents' employment and income, and a continuous decline in risk appetite 1) Be cautious of the shift from "borrowing" to "saving" in corporate sectors. From the perspective of leverage ratio data, currently, various sectors in China have not shown a continuous decline in leverage ratio. However, since 2021, residents have basically stopped leveraging up, while the leverage ratios of enterprises and government sectors have increased. This may indicate that the various sectors in the country have not yet entered a "balance sheet recession" environment similar to Japan's. However, by 2023, the leverage ratio of non-financial corporate sectors in China will reach 168%, significantly higher than the levels in Japan and the United States; while the leverage ratio of the residential sector is relatively low. Considering that some local government financing platform debts are included in the corporate sector, according to Wind data, China's local government financing platform debt balance is about 11.6 trillion yuan in 2023. Adjusted for this, the leverage ratio of the corporate sector is about 159% (excluding debts such as bank credit from local financing platforms); according to Zhang Ming of the Chinese Academy of Social Sciences (in 2022), the ratio of local government financing platform debt to GDP is around 40%, calculated based on the nominal GDP size of about 46 trillion yuan in 2021. Assuming this scale remains unchanged by the end of 2023, the adjusted leverage ratio of the corporate sector is about 132%. Considering the positive progress made in a series of debt reduction measures under the sound long-term risk prevention and resolution mechanism, the scale of local government financing platform debts may decrease, leading to a possible range of 132%-159% for the corporate sector leverage ratio in 2023, which is still not low compared to the levels in the US and Japan.

2) Timely assistance to small and medium-sized enterprises. Economic downturns, or even crisis outbreaks, often create enormous pressure on the normal operation of enterprises. After experiencing long-term economic downturn pressure following the bubble burst in the 1990s, the number of bankruptcies in Japanese companies continued to rise, causing significant blows to the adventurous spirit at the societal level and the investment enthusiasm of survivors. To avoid this phenomenon, it may be necessary for policies to be promptly introduced at the government level to provide tax cuts, credit support, and other measures when enterprises are in distress, especially focusing on supporting small and medium-sized enterprises, to alleviate their operational and liquidity pressures, enabling them to quickly overcome difficulties and restore confidence.

3) Encourage state-owned enterprises to distribute dividends. Increasing dividends by central state-owned enterprises not only increases local government income, providing support to local finances amid declining land transfer income but also avoids the adoption of contractionary policies under local fiscal pressure, which could disturb the confidence of enterprises and residents. Moreover, in the context of the macroeconomy transitioning from high growth to high-quality growth, it is better to reward small investors and guide companies to share wealth with investors through dividends.

(3) Policies needed for confidence restoration: Group consensus, early intervention, fiscal and monetary coordination

1) Key to reaching policy consensus: Resolving conflicts of interests and ideas among different groups. According to Shirakawa Fangming, the greatest similarity between the European debt crisis and the Japanese financial crisis is the difficulty in reaching necessary consensus in solving the problems, leading to further deterioration of the crisis. The biggest obstacle in the Eurozone comes from conflicts of interests and fundamental ideas among member countries, while Japan's opposition is manifested in conflicts of interests between the elderly and working-age laborers, residents of metropolitan areas and those in areas with declining populations, etc. Clear policy direction is conducive to promoting organic coordination among different departments and society during the process, ultimately forming a "social contract" recognized by the public to a certain extent, boosting residents' confidence and the effectiveness of economic policy operation significantly.

2) Crisis prevention > Early intervention > Policy stagnation. Once a crisis occurs, it will have a huge impact on the economy. At the policy level, efforts should first be made to prevent bubbles and crises. After experiencing crises, both Japan and Europe reached consensus and the speed of policy rescue was significantly faster in Europe, with relatively lower costs. From the exposure of the Greek sovereign debt crisis at the end of 2009 in the Eurozone to the consensus reached by all member countries at the end of 2011 that "rescuing problem countries is a necessary link to ensure the stability of the euro system," it took about 2 years. The internal opposition among different groups in Japan, while being the underlying reason for Japan's political turmoil from the bursting of the bubble in the 90s to the change of government before the Abe administration in 2012, constantly oscillating between fiscal expansion and contraction, the impact of multiple rounds of global economic crises such as the Asian financial crisis and the U.S. subprime mortgage crisis in the post-crisis era also caused significant disturbances to its policy consistency, resulting in a lack of real sense of temporary economic recovery in Japan, and residents' confidence eventually being exhausted.

3) Coordination between fiscal and monetary policies is crucial. Behind the crises in Japan and Europe lies the problem of lack of coordination between fiscal and monetary policies. After 1991, Japan's monetary policy overall tended to be loose, but the effects on saving asset prices after the bubble burst and the downturn of the real economy were minimal, showing signs of a "liquidity trap" after 1995. However, the slow cognition and fiscal oscillation made it difficult for the monetary authorities to fight against the "headwinds" of the bubble economy collapse alone. The underlying institutional problem of the European debt crisis stems from the contradiction between the Eurozone's dual structure of monetary and fiscal policies. China's institutional advantages are more conducive to policy mechanism coordination. Zheng Zhajie, director of the NDRC, stated on July 30 that efforts should be made to promote coordinated efforts in fiscal, monetary, industrial, price, and employment policies to avoid "synthetic fallacies" and "decomposition fallacies."

Authors: Suo Yaopei, Xing Yanshu, Source: Yaopei Strategy Exploration, Original Title: "Why Japanese People Don't Buy Japanese Stocks Bull Market Account - Low Interest Rate Era Series 2"