Stocks rise, GDP falls, Japan's economy suffers from 'cold and fire'

On Thursday, Japan's most important stock index, the Nikkei 225, closed at 39,098.68, surpassing its previous high of 38,957.44 set on Dec. 29, 1989, and reaching its first high in 34 years. Foreign media Nikkei Asia commented that the performance of the Japanese stock market or means that the Japanese economy has come out of the "lost decades."

Since the first quarter of 2023, the Nikkei 225 index has maintained an upward trend, with an annual gain of 30.13% in 2023. Since 2024, the Japanese stock market has also performed brilliantly, rising more than 15% since the beginning of the year and continuously refreshing the highest level since 1991. At the same time, Japan's real estate market frequently came "skyrocketing" news, in November last year, the average price of new apartments in the 23rd district of Tokyo has reached 128.11 million yen (about 6.31 million yuan), an increase of 50%. However, it is necessary to think about this wave of Japanese capital markets, is Japan about to usher in a new wave of economic take-off?

On the one hand, affected by the international geopolitical situation, Japan has become an important safe haven destination and asset "value depression". The low interest rate of yen combined with the depreciation of yen makes the financing cost of yen low, forming a large arbitrage space. As a result, foreign capital, led by Mr Buffett, has poured into Japanese equities, raising valuation expectations.

On the other hand, at the macro level, Japan's loose monetary environment and better economic fundamentals also provide "soil" for its stock price to rise. Since the era of "Abenomics", the Bank of Japan has established a benchmark interest rate system with short negative interest rates and long zero interest rates, and opened a wide range of large-scale asset purchases. The ultra-loose liquidity has become the basis of the long-term bull market in the Japanese stock market since 2013. In particular, the Bank of Japan has become the largest buyer of ETFs, becoming the ballast stone of confidence in the stock market.

Remarkably, while the stock market soared, Japan's GDP showed a decline. Japan's GDP in 2023 is estimated at 591.482 trillion yen, or about $4210.6 billion, lower than Germany's $4,456.1 billion. From third in the world to fourth in the world.

The reason for this phenomenon. First, industrial degradation. Taking Toshiba as an example, on December 20 last year, documents released on the official website of Toshiba Corporation of Japan showed that the company delisted from the Tokyo Stock Exchange and Nagoya Stock Exchange on the 20th, ending its 74-year listing history. And "Toshiba" for Japan, is only a minor problem. In 2023, according to the data of China Automobile Association, China's automobile exports reached 4.91 million units, which has exceeded Japan's exports of 4.42 million units in 2023. Officially become the world's largest automobile export country. In the era of "new energy" and "intelligence", the speed of innovation of Japanese car companies has been greatly slowed down. Second, domestic demand is weak. In the fourth quarter of last year, the drag on GDP from household consumption reached 0.5 percentage points, the third consecutive quarter of contraction. Household spending fell 2.5 per cent in December from a year earlier, the 10th consecutive monthly decline, given negative real income growth in the third quarter (wages are not rising faster than inflation). Third, the exchange rate is also an important reason. Under the long-term guidance of the Japanese government, a depreciating yen can boost exports and help improve corporate profits, which in turn will boost the weak consumption caused by inflation. The yen has plunged by almost a fifth against the dollar in the past two years, including a 7 per cent fall last year. Japan's Kyodo News agency quoted economic experts as saying that Japan's financial policy led to the sharp depreciation of the yen and the long-term Japanese economic downturn are the main reasons for Japan's nominal GDP surpassed by Germany.