Abe Invokes Thatcherism as Reform Push Raises Disparity Risk

Photographer: Tomohiro Ohsumi/Bloomberg

Pedestrians walk through a shopping street in Okayama, Japan. Around a quarter of households with more than one person in Japan don’t hold financial assets such as savings, life insurance, bonds and stocks, according to a Bank of Japan survey conducted last year. Close

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Photographer: Tomohiro Ohsumi/Bloomberg

Pedestrians walk through a shopping street in Okayama, Japan. Around a quarter of households with more than one person in Japan don’t hold financial assets such as savings, life insurance, bonds and stocks, according to a Bank of Japan survey conducted last year.

Japan’s Prime Minister Shinzo Abe evokes the late Margaret Thatcher as he repeats “there is no alternative” to his platform of economic change. One of the byproducts: prospects for a Thatcherite division of wealth.

Tomoko Kawamura, 33, a pharmaceutical-company worker in Tokyo, bought a Louis Garneau bicycle costing about 50,000 yen ($510) and a MacBook Air laptop with proceeds from stock investments this year. She owns a one-bedroom apartment in Tokyo’s well-heeled Meguro district. Eight hundred kilometers (500 miles) to the southwest in Ehime prefecture, Miyoko Yamazaki, 81, is struggling to cover the rising cost of gasoline for her regular hospital trips.

“Prices are going up, making our lives tougher,” said Yamazaki, a retired taxi driver who doesn’t hold stocks or property. “I don’t really feel that the economy is booming.” In a restaurant on the 20th floor of a building with views over central Tokyo, Kawamura tells it differently: “I’m enjoying the benefits of Abenomics.”

The fortunes of Kawamura and Yamazaki exemplify the danger that Abenomics will impose social strains on an economy where the income gap between the richest 10 percent and the poorest is a less than a third that in the U.S. Pressure may rise for aid to the less fortunate, adding to the fiscal strain of a nation with the world’s largest debt burden.

Photographer: Tomohiro Ohsumi/Bloomberg

A man walks past commercial buildings in Osaka. Land prices as of July 1 in Japan’s three largest cities of Tokyo, Osaka and Nagoya rose for the first time in five years. Close

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Photographer: Tomohiro Ohsumi/Bloomberg

A man walks past commercial buildings in Osaka. Land prices as of July 1 in Japan’s three largest cities of Tokyo, Osaka and Nagoya rose for the first time in five years.

“Abenomics, at least in its initial stage, is rewarding those who have assets, and the gap between the haves and the have-nots is widening,” said Soichi Okuda, chief economist at Sumitomo Shoji Research Institute, a think tank owned by Sumitomo Corp., Japan’s fourth-biggest trading house. “The fate of Abenomics, which aims to end deflation, will be determined by whether wages go up.”

Thatcher’s Policies

Abe cited Thatcher in a speech in London in June, saying of his economic growth strategy: “There is no alternative,” a phrase the former U.K. prime minister used for her policies of monetarism, financial deregulation and restructuring of state industries in Britain in the 1980s.

Within seven years, Thatcherism had driven unemployment to a record of more than 3 million people and widened the gap between rich and poor. Yet her policies also reversed a sense of terminal decline, epitomized by the so-called winter of discontent in early 1979 when strikes by groups from teachers to rail workers plunged the country into crisis. Annual gross domestic product growth peaked at 6.6 percent in the first quarter of 1988.

Photographer: Robert Gilhooly/Bloomberg

Office workers eat bento lunchboxes in Tokyo. Regular wages excluding overtime and bonuses fell 0.4 percent in August from a year earlier, extending the longest slide since 2010 to 15 months. Close

Office workers eat bento lunchboxes in Tokyo. Regular wages excluding overtime and... Read More

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Photographer: Robert Gilhooly/Bloomberg

Office workers eat bento lunchboxes in Tokyo. Regular wages excluding overtime and bonuses fell 0.4 percent in August from a year earlier, extending the longest slide since 2010 to 15 months.

Different Approach

While Thatcher gained power promising to quell inflation, Abe wants to stoke it. He’s trying to end a deflationary slump of more than 15 years through a mix of monetary and fiscal easing and measures to loosen industrial regulations to spark innovation. Even so, his policies may initially have a similar effect on wealth distribution.

“Abenomics could open up disparities in Japan,” said Seki Obata, an associate professor at Japan’s top-ranking Keio Business School in Yokohama. “Boosting stock and real-estate prices could widen the imbalance.”

Deepening disparities would mar a society that’s prided itself on homogeneity. Abe in June highlighted the observations a century and a half ago of Townsend Harris, citing the diary of the first U.S. ambassador to Japan: “They are all fat, well clad, and happy looking, but there is an equal absence of any appearance of wealth or of poverty -- a state of things that may perhaps constitute the real happiness of a people.”

Asset Holdings

Around a quarter of households with more than one person don’t hold financial assets, according to a Bank of Japan survey conducted last year.

Real disposable income for a typical family of four -- a company employee with annual earnings of 5 million yen, a full-time housewife and two children, will drop to 4.03 million yen in 2016, about 4 percent lower than now, according to Shungo Koreeda, a researcher at Daiwa Institute of Research Ltd. The calculation takes into account the plan to increase the sales tax to 8 percent in April from 5 percent, followed by a further increase to 10 percent in 2015.

The average income of Japan’s richest 10 percent is 4.5-times higher than that of the lowest decile, compared with 15.9-times in the U.S. and 13.8 times in the U.K., according to the United Nations’ 2008 Human Development Report.

Abenomics: Japan's Economic Therapy Explained

Japan’s Gini coefficient of 0.336 is lower than that for the U.K. and the U.S., which are 0.341 and 0.38, respectively, according to the Organization for Economic Cooperation and Development. The gauge of income inequality ranges from 0, for perfect equality, to 1, which implies one person holds all of a nation’s wealth.

Kuroda Drive

As part of the reflationary push, BOJ Governor Haruhiko Kuroda committed to double the money circulating in the economy to help drive 2 percent inflation within about two years. Kuroda pledged again today to continue easing until the goal is achieved.

Boosting asset prices is one of the channels through which the central bank hopes to induce price rises. The Nikkei 225 Stock Average has risen about 40 percent this year, while the yen has weakened about 11 percent against the dollar -- helping exporters and pushing up import costs. Overseas shipments rose a less-than-estimated 11.5 percent in September, a government report showed today.

Consumer prices, excluding fresh food, increased 0.8 percent in August from a year earlier, the fastest pace since November 2008. Core prices are forecast to rise 2.78 percent in the fiscal year starting in April 2014, according to the median estimate of 41 economists surveyed by the Japan Center for Economic Research. The leap in the projections stems from the sales tax increase.

Severe Impact

“The sales-tax will probably have a severe impact on low-income families with a lot of children and pensioners who don’t own a house or assets,” said Koreeda at Daiwa Institute. “It will be necessary to provide support for those people.”

For Yamazaki, who has to drive about 150 kilometers a month to see doctors, rising costs are already eating into her pension. Gasoline prices rose last month to the highest level since 2008, government data show.

Mos Food Services Inc., said last month it would raise the price of hamburgers at its Mos Burger restaurants for the first time in five years. Yakult Honsha Co., a maker of fermented milk products, said on Sept. 10 it would replace one of its drinks with a new version that costs 14 percent more -- its first price increase in 22 years. Sake-maker Nihon Sakari Co. announced in August the first price increase for its version of the national tipple in 19 years.

Home Owners

For property owners in the major cities, as in Thatcher’s Britain, the gains are boosting wealth. Land prices as of July 1 in Japan’s three largest cities of Tokyo, Osaka and Nagoya rose for the first time in five years.

“Looking at the office building market in central Tokyo, I feel that Abenomics is taking off and the economy is picking up,” said Sachiko Wakabayashi, 23, who works for a real estate agent in Tokyo.

The BOJ today raised its assessment of all nine of the nation’s regional economies.

In rural areas, land prices will keep falling as the population dwindles, said Takashi Ishizawa, chief real estate analyst at Mizuho Securities Co. in Tokyo. Prices will continue to rise in the larger cities where rents will also begin to climb next year, he said.

Salaries have yet to catch up. Regular wages excluding overtime and bonuses fell 0.6 percent in August from a year earlier, extending the longest slide since 2010 to 15 months.

Feeling Pinch

It isn’t just pensioners feeling the pinch. Since graduating from university in 2011, 26-year-old Manabu Yokoyama hasn’t been able to find a permanent position.

“They say that the economy is improving under Abenomics, but I’m not feeling any benefit,” said Yokoyama at a Hello Work job center in central Tokyo. Since leaving college he’s only found part-time work at a fruit-processing factory and other places.

Kawamura has also seen her pay trimmed, but the stocks she bought in department-store operator Marui Group Co. and CMIC Holdings Co., a medical research service provider, made up for it by more than doubling in a year.

“Profits from stock investment are sort of making up for the decline in my bonus,” Kawamura said. “About 80 or 90 percent of my money is in bank savings, but I want to increase my investment in stocks.”

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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