Japanese Prime Minister Shinzo Abe urged companies to increase wages faster than gains in the cost of living to break the legacy of 15 years of deflation, and praised Toyota Motor Corp. and Hitachi Ltd. for pledging to help.
“What we want is for wages to rise more than prices,” Abe said in an interview in the prime minister’s official residence in Tokyo. “We want to enter a virtuous cycle as quickly as possible,” where economic growth propels corporate profits, employers raise compensation and workers spend more, he said.
The Abe administration’s reflation efforts have succeeded in stoking exporter profits with a cheaper yen that’s sent the Topix Index (TPX) of stocks heading for the best year since 1999, with a 46 percent surge so far in 2013. With consumer prices now rising at an annual pace of about 1 percent, higher wages will be needed to avoid hurting households who also face a 3 percentage-point bump in sales taxes in April.
“For us to escape deflation it is extremely important that wages rise,” after they slumped more than prices declined in the past 15 years, Abe, 59, said in the Dec. 6 interview. “Some companies are already responding. For example, executives at Toyota and Hitachi have promised a raise.”
Abe pledged to forge ahead with structural reforms designed to open business opportunities in industries from health care to agriculture. He said his cabinet will adopt a program laying out deregulation priorities in the new year, with a minister placed in charge of the effort.
The prime minister has called four meetings since September with union and business leaders to persuade them to build a consensus on the need for higher wages. Officials are trying to convince Japan Inc. to deploy some of its near-record holdings of cash. Domestic non-financial private companies held 220 trillion yen ($2.1 trillion) in cash and bank deposits at the end of June, almost the size of Brazil’s annual gross domestic product, according to data compiled by the Bank of Japan.
“We are aware of the role Toyota (7203) and the manufacturing industry as a whole are expected to play in revitalizing the economy,” Shino Yamada, a spokeswoman for the Toyota City-based company that is the world’s largest automaker, said today. “Based on these expectations, the workforce and management will discuss this issue based on a request from the labor union.”
Toyota, Japan’s largest manufacturer, last month predicted net income would rise 74 percent to 1.67 trillion yen ($16 billion) in the year through March 2014, aided by a weaker yen. The currency has fallen about 22 percent against the dollar since mid-November last year, when Abe kicked off his election campaign with a platform of reflation.
Hitachi (6501), a Tokyo-based maker of electronic equipment and machinery, predicts operating profit to jump 19 percent to a record 500 billion yen in the year through March 2014. Yoji Maruo, a Hitachi spokesman, said “if it looks like we’re going to achieve a record profit as we forecast, then raising wages is one option,” and talks will probably start around February. Unions haven’t put in a pay-raise request yet, he said.
Executives “are not oblivious to the fact they hold the key,” Kathy Matsui, the chief Japan strategist for Goldman Sachs Group Inc. whom Abe has cited for her work on “womenomics,” said in an interview last week. “They know that if they don’t raise wages and real incomes don’t grow, that could seriously hurt Abenomics.”
Japan’s jobless rate held at 4 percent in October, and the number of positions on offer for every 100 people seeking work rose to 98, the highest level since 2007 -- a sign of tightening in the job market that could put upward pressure on wages. Even so, 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 on Dec. 3.
Rising living costs are starting to erode household spending power, with the consumer price index gaining 1.1 percent in October from a year before. Stripping out energy and fresh food, the gauge rose 0.3 percent, the most since 1998. The main index has been propelled by surging energy costs, a result of a sinking yen that makes imported petroleum more costly. Japan is depending more on fossil-fuel imports since nuclear reactors were shut down after the 2011 Fukushima meltdowns.
“Japan is showing signs of escaping from its 15 years of deflation, although we are still part-way along in that process,” Abe said. “We have been calling on employers to raise salaries from April,” he said. He cited one sign of progress being an average 53,000 yen increase in winter bonuses, according to a Japanese Trade Union Confederation survey.
Boosting the ranks of workers also would contribute to domestic demand, and Abe has made lifting the participation of women in the economy part of his program to shake the nation out of two decades of stagnation. Goldman’s Matsui has estimated that increasing female employment to match that of males would mean 8 million more people in the job market and a boost to GDP of as much as 14 percent.
“The active contributions of women are a pillar of our growth strategy -- Japan isn’t making the most of the abilities of its women,” Abe said in the interview. “We’ll plan more child care facilities so women can work even while caring for children.”
The participation rate for women in Japan’s labor force was at 47.7 percent in 2012, the second lowest among Group of Seven economies, and below 69.8 percent for men, according to the U.S. Bureau of Labor Statistics.
The Abe administration plans to hire women for 30 percent of all new civil-servant jobs in the fiscal year starting in April 2015. The prime minister also said he wants to “focus on all kinds of policies that would make 30 percent of supervisors women by 2020.”
Abe listed accomplishments in the final parliamentary session of the year that spanned an expanded private-sector role in medical research to measures encouraging the consolidation of small agricultural landholdings.
One bill enacted in the Diet session has eroded Abe’s support -- an expansion of government secrecy protections that steps up punishments for violators. Abe’s cabinet approval dropped to 47.6 percent in December, down 10.3 percentage points from a month before. The survey showed that 70 percent of respondents worried about the legislation.
Abe, who secured a majority in the upper house of parliament for his coalition government in July, doesn’t face another election until 2016. He pledged to focus on structural changes that energize the nation’s private sector in 2014.
“We’ve employed a bold monetary policy and flexible fiscal policy, and now we’re reaching the stage where we need to execute a growth strategy that awakens corporate investment,” he said. “We will undertake further reforms in the fields of employment, human resources, agriculture, medicine and health care.”
The government after the new year will “adopt a program laying out deregulation priorities and decide the timing and the cabinet minister who will be in charge.”
Structural changes make up the third arrow of the three-arrow program Abe crafted to revive Japan -- a reference to the tale of a 16th century Samurai warlord, Motonari Mori, who tried to teach his sons unity by showing them a single arrow could be snapped easily, while three together were hard to break.
The first and second arrows were monetary and fiscal stimulus. BOJ Governor Haruhiko Kuroda, whom Abe picked for the job, began a monetary easing campaign of unprecedented size on April 4 -- pledging to double Japan’s monetary base by boosting purchases of bonds and other financial assets to generate 2 percent inflation in about two years.
“If the wage negotiations lead to an increase in base salaries of at least 2 percent, the BOJ will gain confidence in its current policies, and this could be a justification to hold off on further stimulus,” said Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong.
The government’s fiscal efforts began with a 10.3 trillion yen package in February. The cabinet last week approved a 5.5 trillion yen spending plan to cushion the impact of an increase in the sales tax to 8 percent in April, from 5 percent. The government estimates the package will boost GDP by about 1 percent and create about 250,000 jobs.
The economy is forecast to shrink an annualized 4.5 percent in the quarter starting in April, according to the median estimate of economists surveyed by Bloomberg News. GDP rose an annualized 1.1 percent in July-to-September, revised data showed today, slowing from 3.6 percent the previous three months and 4.5 percent in January-to-March.
Besides the sales-tax increase, Japan’s companies are contending with the potential damage to their business in China from rising tensions over disputed islands in the East China Sea. Abe in the interview called for a summit with President Xi Jinping to address bilateral issues.
Abe said that corporate-tax relief is one item on the agenda. In the area of labor regulations, Japan’s large businesses continue to operate under five-decade-old labor rules based on lifetime employment that make it difficult to fire workers.
“The reforms under the Abe administration won’t end,” the prime minister said.
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