Household wealth has risen to a record level as Prime Minister Shinzo Abe “reflates” the economy, giving a cushion to consumers facing higher costs of living.
Household assets increased to ¥1.645 quadrillion at the end of June, up 2.7 percent from a year earlier, according to a quarterly Bank of Japan report released Thursday. Holdings in investment trusts climbed 15 percent to an all-time high of ¥82 trillion.
Rising wealth from a buoyant stock market and a pickup in land prices may cushion households as the April 1 hike in the consumption tax fuels inflation that was 1.4 times wage growth in July.
The challenge for Abe is to encourage consumers to use their savings — still mostly parked in cash — to bolster the economy as he considers raising the tax another 2 points to 10 percent.
“Increasing households’ assets will help sustain Japan’s recovery,” said Hiroshi Miyazaki, an economist at Mitsubishi UFJ Morgan Stanley Securities Co. “Consumers must be relieved with the increase in their assets, especially when their real incomes are dropping.”
The gains underscore progress in Abe’s effort to reflate the economy. The Topix share index has gained 56 percent since he took office in December 2012, as his handpicked governor at the Bank of Japan, Haruhiko Kuroda, pumps unprecedented stimulus that has helped weaken the yen and fuel corporate profits.
Land prices in Tokyo, Osaka and Nagoya increased for a second year in the 12 months to July 1 and residential prices in the areas increased for the first time in six years as low interest rates drove demand for properties, according to data released by the land ministry Thursday.
“Japan’s challenge is broadening the new investor base, given the prospect of population declines,” Kuroda said Thursday. “I expect there will be a clearer shift in investors’ risk appetite, which is currently centered on safe assets, once the deflationary mindset is wiped out.”
The increased asset values have yet to kindle strength in consumer spending.
The shift out of safe investments has yet to gain momentum. While households put more money into investment trusts, their holdings of cash and deposits rose for a 30th straight quarter, to ¥874 trillion, accounting 53 percent of their assets.
The flow into investment trusts is too small to say Abe is prevailing in his effort to get households and companies to take more risk, Miyazaki said.
Firms had ¥229 trillion of cash and deposits at the end June, the second-highest on record after peaking at ¥233 trillion three months earlier. Investment abroad by Japanese firms was a record ¥67 trillion at the end of June, up 13.6 percent from a year earlier.
Gross domestic product shrank an annualized 7.1 percent in the April-June period, the most since the first quarter of 2009, as the sales tax hike to 8 percent undercut spending by consumers and companies. Weakness continued this quarter, with household outlays falling 5.9 percent in July. Wages rose 2.4 percent in the same month, lagging overall inflation of 3.4 percent.
Abe is set to decide by the end of the year whether to raise the sales levy in October next year. The economy this quarter will be key to his call.
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