Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

High stock prices. It's a chief reason voters gave for coming out again in favor of Shinzo Abe, who cinched another term as Japan's prime minister on Sunday.

Watching Japan's stock market tick up to its highest level in two decades is a bit like watching the "likes" accumulate from your so-called friends on a popular Facebook post. Affirmation tends to make you feel good at first, but in reality, that friendship can be shallow.

While share prices in Japan have gone up, dividends and share buybacks haven't. Of all developed economies, the nation's dividend payout ratio is the second lowest after South Korea.

Dividend payout ratios in Japan have decreased to 29 percent, despite record corporate profits
Source: Bloomberg

What's more, companies aren't reinvesting -- suggesting that the increase in profits that has underpinned the stock rally may not be sustained. Over a five-year period, half of firms in the Topix 500 Index posted an average return on equity of 8 percent or lower, CLSA Japan strategist Nicholas Smith notes. Less than a third of S&P 500 and Stoxx Europe 600 companies fit that measure.

Follow the Money
Profits are climbing but companies aren't reinvesting them
Source: Ministry of Finance Japan

Money from cuts to the corporate tax rate haven't gone toward capital expenditure or raising wages, either. Leverage also remains elevated, suggesting excess cash has merely been parked on firms' balance sheets.

Cash Block
Wages aren't going up despite record corporate earnings
Source: Japan Ministry of Health, Labour and Welfare

One real worry for investors is that the corporate governance overhaul previously promised by Abe takes a back seat to the political issues he most recently campaigned on, including combating North Korea and rewriting Japan's pacifist constitution

Abe's ultra-easy monetary policy will probably persist, which should help keep stock prices inflated, the yen weak and exports humming along. As my colleague Shuli Ren says, equities have room to move higher.

But stocks tend to be fair-weather friends. Sooner or later investors may realize the share-price rally is built on less than solid foundations.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in Hong Kong at

To contact the editor responsible for this story:
Katrina Nicholas at