Under 'Abenomics,' rich thrive but middle class on precipice

This is the third story of a four-part series on evaluating Prime Minister Shinzo Abe’s namesake economic program, backed by the aggressive monetary-easing by the Bank of Japan.

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The recent debate over wealth inequality has highlighted an unpleasant fact for policymakers — that the income gap between rich and poor is not shrinking, even though Prime Minister Shinzo Abe’s economic policies have been in play for two years now.

Ever since the translated version of French economist Thomas Piketty’s best-selling book “Capital in the Twenty-First Century” was published in Japan in December, academics have closely scrutinized “Abenomics” and its results.

What became clear was that in a society long dominated by families of moderate means — the top 1 percent of wealthy people account for a mere 10 percent of overall incomes — Japan’s middle class is now facing an existential crisis.

According to Akio Doteuchi, a senior researcher at the NLI Research Institute, what is threatening people here is that, under the current social structure, virtually anyone in the middle class is at risk of falling into poverty.

“It’s like walking in a mine field. Many risks lie ahead of you,” Doteuchi said. “Even if you are in the middle class, if something unexpected happens, you could slip into poverty.”

Such risks could include contracting diseases such as cancer and being unable to work, the failure to land a job soon after graduation, or an ill parent who needs looking after.

The big problem in Japan is that there are few social safety nets for such situations. In the past, workers had been shielded by the guarantee of lifetime employment at companies. When they retired, they were supported by family members, Doteuchi noted.

But now, there is an increasing number of nonregular workers, particularly younger ones, whose financial situations are unstable. More and more single-person households are vulnerable to serious health problems.

Data back this up. According to labor ministry figures announced April 1, the number of households living on welfare hit a record 1,618,817 in January. This figure has been on the rise for the last two decades.

The country’s relative poverty rate has also edged up over the last 30 years, especially with single mothers and fathers raising children, although the latest data are for 2012.

On the other hand, data also show that the rich became even wealthier under Abe’s tenure.

Their numbers and the amount of their assets surged in 2013 and are still rising mostly due to sharp gains in stocks triggered by the Bank of Japan’s aggressive monetary easing, which started in April 2013, experts said.

According to the Nomura Research Institute, the number of wealthy households jumped 24.3 percent, with the amount of their total financial assets rising 28.2 percent in 2013, compared with 2011 figures.

And as the stock market uptick continues, so too will the number of wealthy people grow.

“Since stocks account for a larger portion of their assets, both the number of wealthy people and their assets are on the rise,” said Hiroyuki Miyamoto, general manager of Nomura Institute’s financial business consulting department.

Households on average are believed to have a majority of their assets either in bank accounts or in cash. But the wealthy hold risk assets such as real estate, stocks and bonds — assets more likely to grow in value faster than mere savings accounts, Miyamoto said.

But at the same time, the wealthy in Japan are less dominant in terms of overall assets when compared with the rich in the U.S., partly because income levels of top corporate leaders are not as high as those in the U.S. and the tax system levies heavier income taxes on wealthy people than in many other countries, he said.

Experts have said the widening gap between haves and have-nots could be an economic driver when a country is rapidly growing. However, once it matures, any wide disparity can hamper economic growth, NLI’s Doteuchi said.

Then what policies will help shrink the gap? The first thing the country needs to do is to help young people find stable employment, he said.

“Abenomics has boasted economic strength, telling people that higher economic growth will shrink the gap between the haves and have-nots via the trickledown effect,” Doteuchi said. “But is that really true? I think not. Solving inequality is the way to improve the economy.”