Despite smooth talk, getting firms to raise pay and boost individual spending tall order for Abe

‘Abenomics’ still has long way to go


Staff Writer

The recent volatility of the Nikkei 225 stock average should not be a cause for alarm, government officials assured Friday, but pundits pointed out that “Abenomics” seems to have a long way to go until the economy begins to show a robust and steady recovery.

While downplaying the key index’s 7.3 percent plunge Thursday, the largest in over a decade, Chief Cabinet Secretary Hoshihide Suga said the government “will continue to watch closely market trends and their influence.”

“Our economy is clearly in the process of recovery,” Suga told reporters.

Mitsumaru Kumagai, chief economist at Daiwa Institute of Research, agreed.

“There was some sense of the market overheating,” and the Nikkei’s present volatility “should be considered transitory,” he said, predicting the yen will continue to ease and stock prices to go up in the mid- to long term.

But Kumagai pointed out that Prime Minister Shinzo Abe is in no position to gloat, as major challenges remain, including finding a way to increase individuals’ income.

Abe seems to have pushed all the right buttons in inducing an economic uptrend since taking office in December. Thanks to support from the Bank of Japan and its hefty monetary easing, the yen has continued to drop against other currencies and helped Japan’s exporters to quickly record substantial profits. That, in turn, has caused the Nikkei to soar.

The economy also marked surprisingly high growth between January and March, at a 3.5 percent annual pace, according to the Cabinet Office. Spending per household in March grew by 5.5 percent compared with last year, the internal affairs ministry revealed last month.

But on the flip side, the yen’s rapid easing has increased the cost of imports, causing headaches for some.

Prices for basic necessities such as tissue paper and vegetable oil are set to go up, while Japan’s reliance on energy imports pushed the country’s trade deficit to historic highs, including an ¥880 billion deficit in April — the highest on record for the month.

Small and midsize companies have yet to celebrate much from Abenomics.

“Sales haven’t changed much for us” despite statistics showing public spending is up, an owner of a bakery in Edogawa Ward, Tokyo, told The Japan Times.

Cost of business-use flour is scheduled to rise in June. With the summer traditionally being a slow season for businesses, the owner said she won’t be able to pass on to customers the additional expense.

“I think we will have to raise our prices little by little,” she said.

Earlier this month, Tadashi Okamura, chairman of the Japan Chamber of Commerce and Industry, warned reporters that “approximately 80 percent of small and medium-size companies will face difficult challenges” under the quick depreciation of the yen.

Okamura urged the government to weigh measures to support such businesses.

Daiwa’s Kumagai noted the cheaper yen will cause import costs to spike in the short run. But according to research by the institute, exporters should be able to overturn the nation’strade deficit and create a surplus by next spring. As a whole, the cheaper yen should work as a positive factor for economy, he said.

Meanwhile, raising income for regular salary workers, the key to boosting individual spending, still seems a tall order.

Although some companies, including convenience store giant Lawson Inc. and furniture maker Nitori Holdings Co., have decided to raise their employees’ annual earnings, hiking worker pay hasn’t become a trend yet.

According to the Institute of Labor Administration, 95.4 percent of the 238 companies it surveyed said they postponed raising the salaries of workers newly recruited in April. The private research body said the percentage was about the same as in the past three years.

In a separate study conducted in late April by Research Institute for Advancement of Living Standards, a private think tank, only 19 percent of the 2,000 people it polled said they believed their income would rise within a year.

While Cabinet members such as economic policy minister Akira Amari have asked private-sector firms to return more profits to employees if possible, persuading them won’t be easy.

“It feels awkward for the government to step in, since wages are to be decided between management and workers,” Yasuchika Hasegawa, chairman of the Japan Association of Corporate Executives, told reporters Monday.

According to Kumagai of Daiwa institute, it may take a while for Abenomics to kick in strongly enough to have an impact on employee wages.

“Salary increases traditionally take place six months to a year after the sales of a company grow,” he said.

But the government could consider ways to encourage business managers to accelerate the cycle, including strengthening tax cuts for companies that proceed with pay hikes, he said.

  • 151E

    With the major exception of housing, most consumer purchasing decisions are not influenced so much by inflation / deflation as by product life-cycle. Regular workers are not going to go out and spend more if employment is uncertain and their savings and purchasing power are being eroded by inflation.

    The best way to increase consumer spending is to increase workers’ wages (commensurate with profit). Henry Ford knew this and wrote in his treatise on business, My Life and Work:

    “No question is more important than that of wages – most of the people of the country live on wages. The scale of their living – the rate of their wages – determines the prosperity of the country…. There is no charity in proper wages… all other considerations aside, our own sales depend in a measure upon the wages we pay. If we can distribute high wages, then that money is going to be spent and it will serve to make storekeepers and distributors and manufacturers and workers in other lines more prosperous and their prosperity will be reflected in our sales.”

    Of course the bigger problem, presently beyond governments’ ability to influence, is that every time the global economy gets revved up again by these various stimulus packages, and increased production drives oil back to triple-digit prices – since now we’re having to extract oil from tar sands and deep sea wells – oil then becomes too expensive to burn, and the economy will again sputter and stall. Without a new, inexpensive, alternative transport fuel, fitful growth interspersed with long periods of stagnation is likely to become the new global norm. And no amount of Abenomics or quantitive easing can fix that.