Japan's "economic recovery": real or fake? Investors celebrate, while Japanese tighten their belts

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The stock market is hitting record highs and corporate profits are surging, but ordinary Japanese are carefully budgeting their daily expenses—the narrative of a "Japanese revival" is deepening the cracks beneath the surface.

The Nikkei average price has more than doubled since April last year, far outperforming the S&P 500 in the same period; the Bank of Japan raised the policy rate to its highest level in 31 years; corporate earnings continue to improve. Overseas investors’ enthusiasm for the Japanese market is at an unprecedented level.

However, according to Bloomberg TV host and senior editor Shery Ahn’s observations, the domestic atmosphere in Japan is a far cry from this enthusiasm—ordinary Japanese are cutting spending due to rising prices, and not everyone is sharing in this "recovery."

The core of this split lies in the continued weakening of the yen. The USD/JPY exchange rate has remained above 160 for a long time, benefiting foreign tourists and overseas investors significantly, but at the same time compressing the actual purchasing power of local Japanese residents. Whether the dividends of this recovery can truly benefit households will be the key benchmark for testing if "Japan has truly revived."

The "Golden Era" in Investors’ Eyes

From market data, the logic of "Japan’s revival" is well-supported. Bloomberg Industry Research shows that the projected earnings growth for MSCI Japan Index constituent stocks in 2026 is as high as 18%. If the yen depreciates further, semiconductor and industrial machinery companies may receive an extra boost to their performance.

Weak yen also brings structural opportunities for certain consumer brands. Ryōji Shōda, president of OT Group, a soon-to-be independent subsidiary of Onitsuka Tiger, said in an exclusive interview with Shery Ahn that the weaker yen makes their sneakers more attractive to foreign tourists and the company plans to accelerate global store expansion, returning to the Los Angeles market in February next year—just around three years after closing all North American stores in 2023.

Continued inflow of foreign capital is also mechanically pressing down the yen. According to Shūsuke Yamada, Chief Japan FX & Rates Strategist at BofA Securities, in a Bloomberg program, overseas investors hedging their currency risk on Japanese stock positions is a major source of current yen depreciation pressure. He explained that as the stock prices rise, investors need to sell corresponding currency to maintain their hedge ratio, and this mechanism may have cumulatively generated "hundreds of billions of dollars in extra yen selling pressure," with significant impact.

Yen Trend: 190 or 152?

The depth and duration of the current yen depreciation has led to clear divergences in market predictions about the currency’s outlook.

Jesper Koll, expert director at Manex Group, says, "Within the near term, 1 USD to 190 yen is entirely possible," highlighting some market participants’ concern for further yen weakening.

However, Shūsuke Yamada offers a more moderate outlook for year-end. He believes that the BOJ will hike rates again in October, and the excess return advantage of Japanese stocks compared to U.S. stocks will gradually narrow. These two factors combined will push the yen to appreciate, predicting USD/JPY will fall back to around 152 at year-end.

BOJ raised the policy rate last month to 1%, the highest in 31 years. Since this hike was well anticipated by the market, its impact on the exchange rate was limited. Yamada also pointed out that yen movements are not solely dictated by BOJ policy; the performance of Japanese equities also plays a pivotal role.

Ordinary People’s Accounts: Expensive, and Even More Expensive

For local Japanese residents, the flip side of the currency narrative is the tangible rise in living costs.

Shery Ahn’s article documents the real circumstances of her friends: a teacher, feeling food prices soared, started baking bread at home; retired friends quit their gyms, calling it "too luxurious"; an elderly person shakes his head at the price while buying Nintendo games for his grandchildren.

Ryōji Shōda gave a straightforward description of this phenomenon:

"The prices felt by foreigners in Japan are vastly different from those felt by Japanese people. For Japanese, it feels 'expensive,' even 'very expensive.'"

This split in perception is especially pronounced in tourism consumption. Bolivian tourists buy in bulk in Japan, saying "everything is cheap;" but over a decade ago, at the same place, when the yen was near its historical low of 75, the situation was the complete opposite.

The Quality of Recovery Depends on Whether Wealth Can "Trickle Down"

The current narrative of "Japanese revival" is clear in the capital markets, but its sustainability and real value need to be tested more broadly across the economy.

The normalization of BOJ's monetary policy helps stabilize the yen, and if the currency rebounds to about 152 as predicted by Shūsuke Yamada, inflationary pressure may ease. But whether this transmission chain ultimately improves residents' real incomes and consumer confidence remains an unresolved question.

As Shery Ahn points out, besides improving corporate profits, whether the benefits of recovery can reach households is the key indicator of "Japan’s true revival." Currently, the crack between investors' optimism and the daily experience of ordinary people remains obvious.

Risk Warning and DisclaimerThe market carries risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account individual users' specific investment goals, financial circumstances, or needs. Users should consider whether any opinions, viewpoints, or conclusions herein fit their own situations. Investing based on this is at your own risk. ```