Japan's Economy - Stocks, GDP and the End of Deflation

26/10/25 @jee54321 1

Key Question: Why did Japanese stocks rise sharply while GDP grew more slowly? Many commentators argue: "Japan's stock market boomed, but the economy did not." This presentation explains: Why stocks and GDP are different Why inflation matters How globalisation changed Japan Whether Japan is really in decline 2

1: Japan's Economy Has Grown Nominal GDP Year Nominal GDP 2013 ¥514 trillion 2026 (forecast) ¥677 trillion Growth: about +32% Key Point The economy did not grow by only 10%. Nominal GDP increased by roughly one-third over this period. 3

2: Stocks and GDP Measure Different Things GDP Measures Domestic production Consumption, Investment Economic activity inside Japan Stock Prices Measure Future profits, nvestor expectations Overseas earnings Interest rates, Exchange rates 4

Therefore A stock market can rise much faster than GDP. 5

A British Comparison Think about the FTSE 100. Many large British firms earn substantial profits overseas. As a result: FTSE performance ≠ UK household prosperity The same applies to Japan. Corporate profits and domestic growth are not identical. 6

3: Japan Had 25 Years of Very Low Inflation: Approx. 1998-2021 Japan experienced: Low inflation, Weak wage growth Weak investment growth Slow nominal GDP growth Consequence People became accustomed to: Saving money instead of Investing money 7

4: Inflation Returned After 2022 For many years: Inflation was near 0% After the pandemic: Supply shortages emerged Energy prices rose Global inflation accelerated Result: Japan finally moved above: The Bank of Japan's 2% inflation target 8

Fact 5: Japanese Companies Became Global Over recent decades, many manufacturers expanded abroad. Examples include: Overseas factories Overseas sales Overseas investment Result Corporate profits increased But Domestic investment did not always increase at the same pace. 9

6: The Weak Yen Boosted Profits After 2022: United States Interest rates exceeded 5% Japan Near-zero interest rates This widened the interest-rate gap. Result Stronger dollar / Weaker yen 10

Why a Weak Yen Helps Stocks A weaker yen increases the value of overseas earnings when converted back into yen. For global companies this means: Higher reported profits Better earnings forecasts Rising stock prices Important Higher profits do not automatically mean higher GDP. 11

What Economists Watch Now The key indicators are: Business investment Wage growth Consumer spending Productivity Nominal GDP growth These matter more than stock prices alone. 12

The Positive Cycle Japan Wants A healthier economy may follow this path: Inflation Wage Growth Consumer Spending Business Investment Economic Growth Higher Productivity This is the cycle policymakers hope to create. 13

Is Japan Finished? Challenges Aging population Falling birth rate Labour shortages Weak investment history Strengths Advanced technology Global companies Large domestic market Significant overseas assets 14

Conclusion Japan faces serious challenges. However, the evidence does not support the claim that: “ “ "Japan is finished." 15

Final Takeaway What We Know GDP has grown, Stocks and GDP are different Inflation has returned Corporate profits are strong What Matters Next Investment Wage growth Productivity growth Rising living standards 16

The Real Question Not : “ “ "Is Japan finished?" But : “ “ "Can Japan turn inflation and profits into long-term economic growth?" 17