Prime Minister Shinzo Abe’s success in reviving the world’s third-largest economy hinges on wages rising more than the Bank of Japan’s 2 percent inflation target, according to the investment strategist the premier has invoked as an authority on the country’s need for growth.
“We need to see wages beat the cost of living here,” Kathy Matsui, chief Japan strategist for Goldman Sachs Group Inc., said in an interview at the investment bank’s Tokyo offices today.
Japan’s stocks rallied more than any other developed market this year as the central bank deployed unprecedented monetary easing in a bid to end 15 years of deflation. With the yen’s decline boosting corporate profits, Abe is calling on companies to raise salaries to sustain consumption ahead of a sales-tax increase in April.
Executives here “are not oblivious to the fact they hold the key,” Matsui, 48, said. “They know that if they don’t raise wages and real incomes don’t grow, that could seriously hurt Abenomics.”
Earlier this year, Abe cited Matsui for her long-running “Womenomics” report as the prime minister aims to increase female participation in Japan’s labor market.
The Topix index surged 44 percent in 2013, heading for its biggest annual gain since 1999. The Nikkei 225 Stock Average yesterday closed at its highest since December 2007.
Goldman Sachs boosted its 12-month outlook for the Topix index to 1,450 from 1,400 on Nov. 21, saying earnings per share will double in the 2014 fiscal year compared with 2012. The new target is 17 percent higher than today’s close.
Households face the prospect of sustained inflation for the first time in almost a generation, a dynamic that could hurt spending unless wages also rise. Prices excluding energy and fresh food climbed 0.3 percent in October from a year earlier, the most since 1998.
Japan’s Government Pension Investment Fund, the world’s biggest pool of retirement savings, today said the central bank will fail to reach its goal of spurring 2 percent inflation, which the BOJ said it would achieve in about two years. GPIF President Takahiro Mitani said a 1 percent rate “may be possible.”
In today’s interview, Matsui said that if price expectations are rising then there should be a rational shift in the GPIF’s asset allocation “away from domestic fixed income into other asset classes.”
Japan plans an 18.6 trillion yen ($181 billion) package to counter the impact of an increase in the consumption levy in April to 8 percent from 5 percent now, according to an official who asked not be named, citing government policy.
Salaries extended the longest tumble since 2010 in the same month. Regular wages excluding overtime and bonuses fell 0.4 percent in October from a year earlier, a 17th straight monthly decline, the labor ministry said yesterday.
“Many people assume that if wages don’t go up then consumption won’t go up, but they’re forgetting about the wealth effect,” Matsui said. Higher sales of luxury goods “imply there’s still something going on, despite the pretty lackluster backdrop of wage growth.”
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