Toyota Motor's sparkling earnings show how Abenomics may be good for Japanese firms now, but perhaps a bust for investing in the country over the long term.
Toyota, the world's biggest carmaker, reported a 70 per cent jump in profits last quarter, as it got a boost from this year's 12 per cent drop in the yen against the US dollar.
A look under the hood, however, shows that Toyota's gains may not translate into the sustained expansion Japan hopes Abenomics will spark.
Named after Prime Minister Shinzo Abe, Abenomics is an attempt to use government spending, radical monetary policy and competitive reform to finally rescue Japan from a 20-year-plus slump.
The first step was to hammer the yen lower, making Japanese exporters more globally competitive. A weaker yen has helped Toyota, but not perhaps in the way policymakers want.
Two things have to happen for Abenomics to succeed.
First, external demand prompted by a weaker yen needs to drive a self-sustaining consumer expansion. That requires wage gains.
Second, companies need to invest and expand, using a new pricing advantage from the yen to build volume, not simply to make more money on every car sold.
On the evidence thus far, neither of the two is happening or is likely to happen.
Consider Toyota. While profits are up 70 per cent, most of the focus is on increasing margins, with capital expenditure forecast to increase just 2 per cent and research and development to stay the same.
That is hardly the massive expansion Japan needs.
And while Toyota and others have indicated a willingness to boost wages if profits continue to roll in, thus far they have been far more likely to hand out bonuses rather than make permanent increases in their fixed costs.
It looks very much, in other words, as if Toyota and, likely, many other companies are happy to increase profit margins but not take on the risks of paying more and expanding rapidly.
Given the history of the motor industry and Japan itself, it is hard to blame them.
Japanese workers, having lived through the past 20 years, are understandably wary about increasing spending permanently based on a one-off bonus.
And while Abe said last month that higher wages were "vital" and has used various forums to pressure companies, even corporate tax cuts have not had much of an effect.
A recent corporate survey found that only 5 per cent of respondents would use additional savings to raise wages.
This leaves Japanese workers in a difficult bind. Prices are rising at last, at least a bit, but wages not so much.
Core consumer prices, which include oil products but not fresh food, rose 0.7 per cent in the year to September. Even so-called "core-core" prices, which exclude both food and energy, were flat, the first time since 2008 that they have not fallen.
While that might seem like cause for rejoicing, wages have been stagnant. Salaries are in their longest slide since 2010, with regular wages excluding overtime and bonuses down 0.3 per cent in September. Total cash earnings rose 0.1 per cent.
Minutes of the Bank of Japan's October meeting showed some disquiet over the pace of wage gains, with one member noting that sustained increases might not appear before the annual wage negotiation round in April next year. However, a consumption tax will rise then by three percentage points, almost certainly more than swamping any wage gains.
The fear, of course, is that consumers will not consume, and when consumption tax comes along in April next year, Japan will drift back into deflation and recession.
Remember, Japan, as a country with very large debts and a demographic downward path, needs inflation. Only inflation, and genuine growth, will allow it to manage its debts over the longer term.
Here again, we have a great example of how extraordinary monetary policy creates risks for everyone while handing out what may be short-term benefits disproportionately to the wealthy.
The Nikkei-225 Index has advanced by a third this year and 50 per cent over the past year. Profits among exporters are, by and large, growing quite well.
Even those gains may prove to be short-lived, and taking a five-year view, investors would be wise to be very cautious about the future of Abenomics and Japanese assets.