15 year High Nikkei , 4Q GDP 2014 Recovery: Survey says 81% of Japanese asks “Where’s the Recovery?”

Since February 18th, Japan’s equity bellwether the Nikkei 225 has been drifting at a 15 year high. Additionally the Japanese government recently released data that the economy has been pulled out of the recession in the 4Q.

Yet the man on the street remains puzzled of the so-called recovery. A poll conducted last weekend says that 81% of the average Japanese who participated in the survey have been wondering where the headline recovery has taken hold?

From Nikkei Asia

The recovery in Japan's economy has yet to reach the public, according to Nikkei Inc.'s latest opinion poll, with 81% of respondents saying they have not sensed any tangible improvement.

Merely 13% said that the economic recovery has been felt in their daily lives. The weekend survey was conducted jointly with TV Tokyo.

Preliminary figures for the October-December quarter point to the Japanese economy having expanded for the first time since last April's consumption tax hike.

"The economy is expected to recover on the strength of private-sector demand," says Akira Amari, minister of state for economic and fiscal policy.

Support for the cabinet of Prime Minister Shinzo Abe edged 1 point lower from the January poll to 50%, while those expressing disapproval climbed 1 point to 34%. Among the cabinet supporters, 73% said that an improvement in the economy has not been felt, with 23% indicating that they have sensed a recovery. For those dissatisfied with the cabinet, the percentages came to 96% and 3%.

If the survey has been accurate, then such divergence would be an example of the difference between statistical economy and real economic performance.

It’s also an example of the ongoing parallel universe—surging stocks in the light of a struggling and stagnating real economy

Japan’s stock market penetration level tells us that only about 20% of Japanese households have been invested in stocks according the 2014 Fact Book by Japanese Securities Dealers Association as of 2013

As a share of financial assets, equities represented only 9.4% of the household balance sheet according to the BOJ’s fund flows based on the 3Q 2014 report.

And if one accounts for the latest activities, it appears that Japanese households have been NET SELLERS of equity securities consistently during the past 3 years (2012-14), again based on data from Japanese Security Dealers Association.

The implication is that Japanese households have hardly been beneficiaries of the latest stock market run. This reveals that based on demonstrated preference or actions by market participants, Japanese households have hardly been positive about Abenomics.

Instead because of the deliberate attempt to crash the Japanese currency, the yen, as part of the Abenomics three arrows, Japanese households have been in a capital flight as seen by the jump in the holdings of outward investments in securities and investment trusts according to the BoJ as of the 3Q. 

These outflows or capital flight seem to affirm my predictions way back in 2012-13

So the biggest beneficiaries of the 15 year high Nikkei have mostly been foreigners, followed by domestic investment trusts and financial institutions. And this has been why Abenomics seems to be having a field day with international cheerleaders.

Abenomics’ attempt to push stocks to record upon record levels has only widened the disparities between financial assets and real economic performance. And such divergences has been revealed by the street survey.

Thus, whatever recovery that will be seen in the future will mostly be about statistics and hardly about progress in the real economy

Price distortions from sustained currency debasement will continue to have an adverse impact on the domestic entrepreneurs' economic calculation thereby filtering to the process of economic coordination or allocation of resources. Redistribution via inflationism won’t create economic value added but instead increases the misallocation of resources which results to the erosion of productivity and capital consumption.

Additionally Abenomics seem as in trouble. A reported rift between PM Shinzo Abe and BoJ Kuroda may be brewing.

From another NIkkei Asia report: (bold mine)

It is hard to say what, exactly, is going on between Prime Minister Shinzo Abe and Bank of Japan Gov. Haruhiko Kuroda, but one thing is clear: The once rock-solid relationship between the nation's leader and its central banker is starting to crack.

Signs of this strain were evident during a Feb. 12 meeting of the Council on Economic and Fiscal Policy.

Kuroda, in an unusual move, requested permission to speak and offered straightforward advice for the prime minister, according to a person informed about the matter. The BOJ governor stressed that interest rates could soar in the future if the fiscal credibility of the government is called into doubt.

But the minutes of the meeting, released five days later, included little of what Kuroda actually said. Only vague phrases such as "We need to have serious discussions [on fiscal rehabilitation]" were left in the document.

The report speculates that the split may have been due to the differences in views of tax policies. I am not here to speculate on this

Nonetheless, such development seems to coincide with the latest spike by the Japanese Government Bonds across the curve.

From a record low of .207% January 19 2015, yield of the 10 year JGB soared to .45% on February 16 as shown by the chart above from investing.com

I have noted this weekend that BoJ’s assurances of more easing may have temporarily quashed the JGB rebellion. Thus the yield has recently backed off.

Yet more signs of fissures between the two political leaders, the principal architects of Abenomics, could possibly mean a revival of the JGB rebellion.

And if this happens big trouble looms, not just in the financial markets but in the real economy, and more importantly, raises risks of Japan’s precarious fiscal conditions as well. Japan's outstanding national debt has reached 1,029 trillion yen ($8.62 trillion) as of 2014 according to the Asahi Shimbun

And such trouble will have transmission links abroad.

Record stocks stares at the face of record imbalances.