Misery Index Rising to 33-Year High on Abenomics: Japan Credit

Photographer: Haruyoshi Yamaguchi/Bloomberg

Shinzo Abe, Japan's prime minister, gestures as he speaks during a news conference at the prime minister's official residence in Tokyo, Japan. Close

Shinzo Abe, Japan's prime minister, gestures as he speaks during a news conference at... Read More

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Photographer: Haruyoshi Yamaguchi/Bloomberg

Shinzo Abe, Japan's prime minister, gestures as he speaks during a news conference at the prime minister's official residence in Tokyo, Japan.

Japanese Prime Minister Shinzo Abe looks set to drive an indicator of economic hardship to a 33-year high by increasing taxes and prices amid stagnant wages.

The misery index, which adds the jobless rate to the level of inflation, will climb to 7 percentage points in the three months starting April 1 when Japan raises its sales levy to 8 percent from 5 percent, based on the median estimates of economists in Bloomberg News surveys of unemployment and consumer prices. That would be the highest level for the measure since June 1981 when Japan was emerging out of depression after the oil shocks in the 1970s.

Bank of Japan monetary stimulus designed to spur economic growth and achieve 2 percent inflation has weakened the yen by 6.8 percent in the past 12 months, eroding the value of wages to a record low. Abe, the son of an ex-foreign minister who grew up in a house with servants, is under fire from the opposition party after the cost of living surged to a five-year high.

“Inflation is really tough,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees more than $77 billion. “Those who speak favorably about inflation might have been born in wealthy families and never experienced the hardship that inflation brought.”

The yen traded at 103.07 per dollar as of 11:54 a.m. in Tokyo. It plunged 18 percent last year, the sharpest drop since 1979, boosting inflation through higher import costs. Consumer prices (JNCPIYOY) rose 1.4 percent in January from a year ago, near the five-year high of 1.6 percent advance in December, government report showed last month.

National Burden

Japan’s 10-year sovereign yield was at 0.62 percent, the lowest globally. It dropped to as low as 0.57 percent on March 3, a level unseen since May 7, and will remain under 0.9 percent this year, analysts surveyed by Bloomberg forecast. The bond market will be “resilient,” Ishigane said.

The country is raising the sales levy as it struggles to pay for care of the world’s fastest-aging society. The ratio of tax and social security costs to national income is estimated to climb to the highest level ever at 41.6 percent in the fiscal year starting April, according to a Ministry of Finance report released last month.

“We need higher wages to offset the ballooning burden,” said Hidenori Suezawa, a financial market and fiscal analyst at SMBC Nikko Securities Inc., one of 23 primary dealers obliged to bid at government bond auctions. “As inflation quickens, the value of pensions people receive will decline in real terms.”

Lagging Pay

Wages have not caught up with the increases in living costs and have yet to ripple through to the broader labor market. Pay fell nationwide in the year through January and will rise less than 1 percent this year, according to economists surveyed by Bloomberg. In a Dec. 6 interview, Abe called for companies to raise wages faster than inflation.

A worker in Japan earned an average of $34,138 in 2012 based on the exchange rate taking account of the differences in the cost of living, data from the Organization for Economic Development and Cooperation showed. That’s the 11th lowest among the 29 nations tracked and compares with $55,048 in the U.S.

The opposition Democratic Party of Japan will stop Abe’s reckless drive and urge the premier to change his policy, Banri Kaieda, the DPJ leader, said on March 7. “Bad inflation” driven by yen weakness is increasing burdens on small companies and households, he said at a convention held by the Japanese Trade Union Confederation.

Toyota Raise

Toyota Motor Corp., forecasting a record 1.9 trillion yen ($18 billion) profit this fiscal year, agreed to increase base wages in Japan for the first time since 2008. The average Toyota Motor Workers’ Union member will earn 2,700 yen more in base pay per month, the nation’s largest carmaker said today. Toyota also will pay an average bonus of 2.44 million yen, the equivalent of 6.8 months of salary and the most in six years.

Companies including Panasonic Corp., Hitachi Ltd. and Fujitsu Ltd. will raise base pay by 2,000 yen ($19) a month, the first increase in six years, the Nikkei reported on March 9.

Nippon Telegraph & Telephone Corp.’s eight major group companies, including its mobile-phone unit, NTT Docomo Inc., will raise base salaries, the newspaper reported the following day. NTT, about 33 percent owned by the government, employs 227,000 workers.

The misery index, designed by American economist Arthur Okun to gauge standards of living, was at 5.1 percentage points in January, near the five-year high of 5.4 percent in November. That’s still lower than 8.3 percentage points in the U.S., where the jobless rate will be at 6.6 percent this quarter, compared with 3.9 percent in the Asian country, based on analyst estimates.

Ending Deflation

“Exiting deflation is positive for growth because it assists recovery in the job market,” said Takuji Aida, the Tokyo-based chief economist for Japan at Societe Generale SA, another primary dealer. “Even as the pace of growth in pay per worker lags behind the rise in the cost of living, expansion of employment will increase total wages.”

The government has yet to decide on whether to go ahead with a planned second increase in the consumption levy to 10 percent in 2015. Abe is due to detail growth measures in June after approving a 5.5 trillion yen extra budget in December to offset setbacks of a higher tax.

Seventy percent of 34 economists forecast the BOJ will add to its unprecedented stimulus between now and the end of September to steer the economy through a projected contraction in the second quarter, according to a Bloomberg survey conducted Feb. 26 to March 4. Gross domestic product will shrink an annualized 3.9 percent in April-June period, the sharpest drop in three years, another Bloomberg poll of economists predicts.

“The sales tax will add to pressures of bad inflation,” said Yasunari Ueno, the chief market economist at Mizuho Securities Co. “It’s possible the government will be forced to delay the second increase to 10 percent.”

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net; Yumi Ikeda in Tokyo at yikeda4@bloomberg.net

To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net; Sandy Hendry at shendry@bloomberg.net Jonathan Annells, Pavel Alpeyev

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