Japan’s split-screen economy: roaring stocks and shrinking GDP

If ever there was proof that a nation’s economic health and stock market dynamics are two entirely different things, it’s present-day Japan.

The government is trying to spin this as a “technical” recession. That’s Tokyo-speak for “no big deal”, yet there is little cause for optimism when you look at the breakdown of Japanese GDP in late 2023.

As these debates play out, Japan’s economic challenges make for a tantalising split screen with a stock market testing 35-year highs. On one screen is a once-in-generation equity rally capturing global investors’ imaginations.

This “Buffett effect” helped set the stage for a Nikkei boom, putting Tokyo in global headlines for all the right reasons and offering some much-needed counter-programming to Japan’s latest recession.

As the central bank turbocharged QE, the yen plunged. That, along with shareholder-friendly policies, generated record corporate profits. Yet none of these trends boosted incomes enough to catalyse a virtuous cycle of increased consumption.

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Japan beef bowls and coffee costing more as workers feel the pinch from food price hike

The question is, when will these conflicting narratives intersect, or even collide? There are valid reasons to worry that the Nikkei bulls have already charged well ahead of the economic fundamentals underpinning the market.

The cost of Tokyo’s obsession with a weak yen became clear last week when data showed Japan had fallen behind Germany in GDP terms. Dropping to fourth place globally is a blow to the collective Japanese psyche.

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American tourists flock to Japan to take advantage of weak yen, strong US dollar

Could this be the wake-up call Tokyo needs to regain the reformist momentum? Let’s hope so. Kishida, like Abe before him, knows