A huge amount of the relative gains in Japan have come from the strength in the U.S. dollar. Indeed, when you take a look at dollar-denominated measures of the Japanese stock market, you can see most of the outperformance evaporate. The iShares MSCI Japan ETF , for example, is up just 20% over the past two years, reflecting the fact that the dollar has climbed from about 80 yen to as much as 125 yen.
The dollar's influence has had a fundamentally positive impact on many Japanese businesses. Exporters in particular have benefited from the weak yen, as they've been able to sell their goods overseas and translate their foreign-currency profits into a larger amount of local currency. The Japanese government has also made efforts to stimulate growth, with a combination of factors that include quantitative-easing-based asset purchases from the Bank of Japan and moves from Prime Minister Shinzo Abe to try to end the deflationary spiral that has held the island nation back for the past quarter-century.
... but uncertainty lies ahead
Still, Japan has had to deal with challenges as well. A new consumption tax threatened economic growth when it was implemented last year, taking money out of consumers' pockets and stifling spending. More recently, Abe has had to update his economic plan with more aggressive strategies, including a push toward encouraging population growth, cutting corporate taxes to spur greater industrial growth, and looking to strengthen the nation's Social Security programs.
Moreover, it's increasingly unclear whether the global quantitative easing experiment has actually been successful. Throughout Europe and Asia, various efforts to control interest rates have had only mixed results, and even the relative success of the U.S. hasn't led to unambiguous economic health. The Federal Reserve's reluctance to raise interest rates even slightly highlights the vulnerability of the market even here.
Finally, China has played a vital role in economic prospects throughout the Asia-Pacific region. As growth in the Chinese economy has decelerated, Japanese companies have started to lose a key source of demand, and if the emerging market is facing the prospect of having to accept economic expansion at a permanently slower rate, then Japan will have to adjust as well.
Japan faces many of the same challenges that the U.S. does, and dealing with them will be equally difficult. If its efforts succeed, though, then Japan's long bull market might yet have further to run despite its recent steep downturn.
The $15,978 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more... each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how you can take advantage of these strategies.
The article Has Japan's Long Bull Market Come to an End? originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .