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

Stock market at record highs, corporate profits surging, but ordinary Japanese are pinching pennies for daily expenses — the cracks are deepening behind the "Japan revival" narrative.

The Nikkei Stock Average has more than doubled since last April, far outperforming the S&P 500 over the same period; the Bank of Japan has raised its policy rate to a 31-year high; corporate earnings continue to improve. Overseas investor enthusiasm for the Japanese market is at an unprecedented level.

However, according to Bloomberg TV anchor and senior editor Shery Ahn's observations, the atmosphere within Japan stands in stark contrast to this frenzy — ordinary Japanese are cutting back on spending due to rising prices, and not everyone is sharing in this "recovery."

At the heart of this divergence is the persistently weak yen. The dollar-yen exchange rate has remained above 160 for an extended period, greatly benefiting foreign tourists and overseas investors, while simultaneously squeezing the real purchasing power of local Japanese residents. Whether the dividends of this recovery can truly reach the household level will be the key yardstick for testing whether "Japan has truly revived."

The "Golden Age" in the Eyes of Investors

From a market data perspective, the logic of "Japan revival" is not without support. Bloomberg Intelligence data shows that the expected earnings growth for MSCI Japan index constituents in 2026 is 18%, and if the yen depreciates further, the performance of semiconductor and industrial machinery companies could receive an additional boost.

The weak yen is also creating structural opportunities for some consumer brands. Ryoji Shoda, president of OT Group, a subsidiary that will soon operate the Onitsuka Tiger brand independently, said in an exclusive interview with Shery Ahn that the yen's depreciation has made the brand's sneakers more attractive to foreign tourists. The company plans to accelerate global store expansion and return to the Los Angeles market next February — just about three years after closing all its North American stores in 2023.

Ongoing foreign capital inflows are also putting downward pressure on the yen from a mechanical perspective. According to Shusuke Yamada, chief Japan foreign exchange and rates strategist at BofA Securities, appearing on Bloomberg, currency hedging by overseas investors on their Japanese stock positions is a major source of current yen depreciation pressure. He explained that when the prices of the underlying investments rise, investors need to sell the corresponding currency to maintain the hedging ratio, and this mechanism may have generated "thousands of billions of dollars in additional yen selling pressure," the impact of which should not be underestimated.

Yen Outlook: 190 or 152?

The depth and duration of the current yen depreciation have led to a clear divergence in market expectations for the currency's outlook.

Jesper Koll, expert director at Manex Group, stated that "a rate of 190 yen per dollar in the near term is entirely possible," reflecting concerns among some market participants about further yen weakness.

However, Yamada holds a more moderate forecast for the yen's trajectory by year-end. He believes the Bank of Japan will raise rates again in October, and coupled with the gradual narrowing of the outperformance advantage of Japanese stocks over U.S. stocks, these two factors will together push the yen higher. He expects the dollar-yen to fall back to around 152 by year-end.

The Bank of Japan raised its policy rate to 1% last month, the highest level in 31 years. Since this rate hike was fully priced in by the market, the impact on the exchange rate was limited. Yamada also noted that the yen's trajectory is not solely determined by central bank policy; the performance of the Japanese stock market also carries significant weight.

The Average Person's Ledger: Expensive, or Even More Expensive

For local Japanese residents, the other side of the exchange rate narrative is the tangible rise in living costs.

In her article, Shery Ahn documented the real-life situations of friends around her: a teacher, feeling the sharp increase in food prices, started baking bread at home; retired friends have canceled their gym memberships, citing them as "too extravagant"; an elderly person shook their head at the price when buying a Nintendo game for their grandchild.

Ryoji Shoda had a straightforward take on this phenomenon:

"There is a considerable gap between the prices of goods in Japan felt by people overseas and those felt by the Japanese themselves. For the Japanese, it's 'expensive,' or even 'quite expensive.'"

This divergence in perception between domestic and foreign audiences is particularly evident in the tourism consumption sector. Tourists from Bolivia shopped heavily in Japan, saying "everything is cheap"; whereas at the same location more than a decade ago, when the yen had approached an all-time low around 75, the situation was exactly the opposite.

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

The current "Japan revival" narrative has been fully reflected at the capital market level, but its sustainability and true value remain to be verified at the broader economic level.

The BOJ's progress in normalizing monetary policy could help stabilize and reverse the yen's decline. If the exchange rate recovers to around 152 as Yamada predicts, inflationary pressures may ease somewhat. However, whether this transmission chain can ultimately improve residents' real incomes and consumer confidence remains an open question.

As Shery Ahn pointed out, beyond corporate earnings improvement, whether the dividends of the recovery can permeate down to the household level is the core metric for measuring whether "Japan has truly revived." Currently, the gap between investor optimism and the daily feelings of the public remains significant.

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