Abenomics has so far relied on the first two arrows -- of government spending and BOJ Governor Haruhiko Kuroda’s unprecedented commitment to achieve 2% inflation by increasing the supply of money -- to end two decades of Japanese malaise.
The first two components have done little to change companies’ reluctance to unleash their improving earnings, which left some 220 trillion yen in cash on their balance sheets at the end of June, according to data compiled by the BOJ. Regular wages excluding overtime and bonuses fell 0.4% in August from a year earlier, a 15th straight drop, government data showed yesterday.
More than 40% of the working-age population is neither employed nor looking for a position, with the absence of women on the job holding down Japan’s potential growth. Abe has highlighted the female job growth as a potential dynamo for the nation. Tapping the resource would require greater access to childcare for mothers.
Meantime, households are girding for a 3 percentage point increase in the consumption levy, to 8% starting April 1. Consumer confidence fell in August for a third consecutive month, and sentiment among merchants declined for a fifth straight month.
“It’s important to have them spend,” Takeshi Niinami, chief executive officer of Japanese convenience store chain Lawson Inc. and a member of the Industrial Competitiveness Council that contributed to the growth strategy, told reporters yesterday. “I want to raise wages to encourage employees to work but we will be in a phase where bonuses will also go up so I have to consider if there is any way to prevent employees from saving.”
For his part, Sony Corp. Chief Executive Officer Kazuo Hirai told reporters yesterday that the higher sales tax -- designed to help rein in the world’s largest public debt burden -- is good for the country. Sony is among Japanese exporters benefiting from the yen’s slide.
Japan’s central bank has indicated that it will add to already unprecedented easing if a setback to the economy warrants it. For now, Governor Haruhiko Kuroda is targeting an annual 60 trillion yen to 70 trillion expansion in the monetary base.
Twenty-six of 36 economists expect the BOJ to add to easing in the first six months of next year, according to a Bloomberg News survey carried out between Sept. 26 and Oct. 1. Increasing purchases of Japanese government bonds, exchange-traded funds and Japanese real-estate investment trusts are among the options.
Abe, who has enjoyed the longest-lived popular backing of any prime minister since Junichiro Koizumi was in office 2001-2006, is betting the stimulus plan will be enough to assuage unease among segments of the public and his own Liberal Democratic Party about proceeding with the higher consumption duties. The legislation for the increase was passed by the former government, before Abe took office in December.
“It’s just political grandstanding to show the Abe administration is making the best efforts for a rise in wages -- it will be difficult to make up for the 3-percentage-point increase in the sales tax by a wage rise,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “The reforms that will bring animal spirits back are the real structural reforms.”