In a chat with Nobel Prize-winning economist and New York Times columnist Paul Krugman, the weekly magazine Aera asked him about the prospects of "Abenomics," which Krugman has supported. He still supports it, but thinks that the consumption tax hike to 8 percent next April was a "bad decision" that may ruin all the good things that Abenomics could achieve. He recommends that Prime Minister Shinzo Abe either cancel the increase or postpone it.
It's probably too late for that, which explains Abe's recent desperate attempts to get Japan's businesses to promise to boost salaries, none of which seem to be working. In a recent Kyodo News survey of 104 "key" companies, only 17 percent say they plan to increase pay in 2014, but none will carry out basic salary increases across the board, what's known in Japanese business parlance as "base up." The feeling is that they'll increase wages for some workers, maybe through bigger bonuses, but such schemes don't instill confidence in workers, and unless workers think they will be paid more in the future than they are now, they aren't going to spend as freely, behavior that's central to the success of Abenomics.
In the Kyodo survey 71 percent of businesses polled believe they will see growth in 2014, but if that growth isn't translated into higher salaries, the game is off. Moreover, the good performance of the economy in 2013 was misleading. As web magazine Diamond Online points out, it was a minority of well-to-do Japanese who benefited from the stock market boom in the past year. Also, because people have anticipated the consumption tax hike next year, they rushed to buy houses. These two factors boost numbers, at least temporarily, but they don't solve the underlying problem of deflation and lack of consumer sentiment in the population at large.