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‘Buffett Indicator’ Flashes Warning on Japan’s Stock-Price Gains

One of Warren Buffett’s favorite gauges for valuing share prices is flashing warning signals for Japan after data showing that the world’s third-largest economy shrank in the second quarter while the stock market kept rising.

Japan’s gross domestic product report this week makes for sobering reading, with the economy contracting an annualized 1.6 percent in the second quarter as consumers cut back purchases, businesses trimmed spending, and exports declined. Yet, the broader Topix index reached to the highest level since 2007 this month.