Mark,

 

Yes, the engineered fall in the yen at the beginning of the Abe administration triggered the rise in the market because it's top-heavy with exporters. Should have mentioned that.

 

While that increases the price competitiveness of Japanese exports, it reflects the lack of intrinsic competitiveness. When you're really competitive you can export while selling at premium prices, as SONY used to do. When you're not as competitive, you have to cut price to get people to buy your stuff. That's what the weak yen reflects. Here's at open I wrote for the London FT (no paywall) at https://richardkatz.substack.com/p/my-financial-times-oped-on-the-yen

 

Richard Katz

The Contest for Japan's Economic Future at https://www.amazon.co.jp/-/en/Richard-Katz/dp/0197675107/ref=sr_1_1?crid=3CTC1FRXRX2IG&keywords=Richard+Katz&qid=1699749524&s=english-books&sprefix=richard+katz%2Cenglish-books%2C137&sr=1-1

 

 

From: SSJ-Forum Moderator <ssjmod@iss.u-tokyo.ac.jp>
Sent: Tuesday, January 30, 2024 8:11 PM
To: ssj-forum@iss.u-tokyo.ac.jp
Subject: [SSJ-Forum] Stock Rally Does NOT Mean "Japan Is Back"

 

From: Mark Manger <mark.manger@utoronto.ca> Date: 2024/01/30

 

On a more banal note, this also reflects the depreciation of the yen that increases the profits of exporters whose earnings are in dollars. As a result, over five years, the Nikkei 225 index is up 75% in yen terms but the exchange rate has depreciated by 36% so for a USD investor it's a lot less glorious.

 

Obviously that also attests to the continued competitiveness of leading Japanese exporters.

 

--Mark

 

 

Mark S. MANGER (he/him)
Professor of Political Economy and Global Affairs

Director, Global Economic Policy Lab (GEPL)

Munk School of Global Affairs and Public Policy & Department of Political Science

University of Toronto

1 Devonshire Place, Room 324N
Toronto, ON   M5S 3K7
Phone: 416-946-8927 | Fax: 416-946-8877

mark.manger@utoronto.ca

Time zone: Eastern Standard Time (GMT-5)

On Jan 29, 2024, at 22:51, SSJ-Forum Moderator <ssjmod@iss.u-tokyo.ac.jp> wrote:

 

From: RICHARD KATZ <rbkatz@rbkatz.com> Date: 2024/01/29

 

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