Once in every decade since the bubble burst in 1990, a temporary upsurge in stock prices combined with promises of reform leads stockbrokers, politicians, and some analysts to proclaim, "Japan is back." In recent weeks, it has become this decade's turn. However, this boast is likely to be just as illusory as those told during the reigns of Prime Ministers Hashimoto, Koizumi, and Abe.

This rally neither reflects the current state of the economy nor is a good predictor of its future. While stock prices are up 60% from six years ago, real GDP is up a trivial 1%, and real compensation per employee is down 5%.

Share prices do reflect both rising corporate profits and a flood of stock buybacks (where companies lift the share price by buying back their own shares. But profits are up mainly due to wage suppression. On the other hand, if a company has $1 million in profits and 1 million outstanding shares, then its profits per share equal $1 dollar. If it could raise that to $2 per share, its share price could double. It could do this the hard way: doubling profit to $2 million. Or, it could do it the easy way: by buying back half the shares. In that way, even though profits are still just $1 million, they are now divided among just 500,000 shares, and so we see $2 per share.

A rally built like this says little about either corporate performance over the long haul nor is it likely to boost the economy.

For details, as well as a link to an Economist.com podcast interview with me see https://richardkatz.substack.com/p/stock-rally-does-not-mean-japan-is