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Editorial: Japan's excessive liquidity-driven market not reflecting real economy amid pandemic

Japan's Nikkei stock average has topped the 30,000-yen mark for the first time in 30 1/2 years, marking the highest level since the speculation-driven, asset-inflated economic bubble that burst in the early 1990s.

    Obviously, the current high share prices fail to reflect the actual state of the Japanese economy as it continues to be battered by the coronavirus pandemic.

    Last year, Japan's real GDP shed 4.8%, posting the largest negative growth since the global financial crisis sparked by the collapse of Lehman Brothers in the late 2000s. The real GDP for the January-March 2021 quarter is also largely expected to experience a contraction.

    And yet, stock prices kept soaring with an influx of enormous sums of money into the market due to the Bank of Japan (BOJ)'s massive monetary easing and other factors. The market faces excessive liquidity where share prices are driven up to levels beyond the actual economic state of affairs.

    What is also worrying is the widening economic gap in Japan.

    The higher stock prices are, the richer the wealthy class holding many shares become. The sales prices of condominiums in the greater Tokyo area have soared to levels only next to those during Japan's bubble economy era of the late 1980s through the early 1990s. Excessive liquidity brings benefits to only a limited segment of people, leaving many other members of the public unable to reap the benefits.

    The coronavirus pandemic has in particular impacted those in vulnerable positions. In 2020, there were a record 50,000 restaurants, retailers and other establishments that were forced to close or fold. A large number of nonregular workers in those businesses were laid off.

    If this serious economic disparity is to be left unaddressed, society would lose its stability, making economic recovery far from certain. The Japanese government is urged to expand support for those in tough predicaments.

    A possible rebound from the high stock prices is another source of concern.

    Share prices are called "a thermometer of an economy." Essentially, stock values should post a steady rise as a consequence of sound growth of the economy and companies.

    Currently, however, this twisted mentality that "it is safe to continue to buy stocks as monetary easing will still go on" has prevailed in the stock market even though the nation is mired in the coronavirus crisis. The development of COVID-19 vaccines is also deemed as favorable news for stock buyers.

    Stock prices are rising too fast. The steeper the rise is, the higher the risk of a stock plunge. If the share market experiences disruptions as seen following the bursting of the economic bubble decades ago, it will cause repercussions to the entire economy, dealing a serious blow to the vulnerable.

    Authorities need to exercise caution against overheating in the market. Last year, the BOJ took the extraordinary step of bulk-buying exchange-traded funds as part of efforts to prop up plummeting stock prices amid the coronavirus pandemic. Now that stock values have skyrocketed this far, the central bank is urged to exercise restraint in its monetary policy.

    Excessive liquidity is prevailing across the global market, with U.S. share prices hitting new highs. Major economies are now urged to remind themselves of the importance of market stability.

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