U.S. President George W. Bush's military unilateralism has destabilized the world order to such an extent that, facing a dearth of low-risk, high-return investments, Western investors have descended on the Japanese stock market.
Japanese interest rates are unprecedentedly low and among the lowest by international standards. This condition should have led to rising stock prices over most of the past year if economic theories are correct. Yet the bellwether Nikkei average on the Tokyo Stock Exchange plunged to a "postbubble" low of 7,607 on April 28, down 80 percent from its all-time high of 38,916 posted in December 1989. The decline mirrored the sharp fall on the New York Stock Exchange following the outbreak of the Iraq war in March.
Recently, though, foreign investors have viewed Tokyo stock prices as undervalued in relation to Japanese economic fundamentals and as likely to make substantial gains. With Japanese politics considered stable and likely to remain so (aside from the threat of North Korea's nuclear arms), with Japanese manufacturers blessed with technical prowess and with banks successfully reducing their pile of bad loans, the Japanese stock market looked set to offer the lowest-risk, highest-return investments in the world.