Kuroda Stresses Importance of Getting Higher Wages in Japan

  • BOJ governor will watch spring wages talks with great interest
  • He says wage growth is somewhat slow given corporate profits

The Bank of Japan Governor Haruhiko Kuroda added to a chorus of calls from Shinzo Abe’s government on the need for higher wages to spur a revival in Japan’s economy.

Prices won’t rise in the long term if salaries don’t increase, Kuroda said Thursday after the BOJ kept its already unprecedented stimulus program unchanged, as forecast by all 41 economists surveyed by Bloomberg.

“I have great interest in how wages will be raised at next spring’s talks,” he said. Wage gains so far have been “somewhat slow” considering high business earnings and the solid labor market, Kuroda said.

The governor, who said that strong corporate profits should continue, also noted that capital expenditures by Japanese companies had fallen a little short of their plans. Weakness in business investment was a significant contributor to a contraction in the economy in the third quarter that tipped the nation into its second recession since Abe became prime minister.

Abe has asked corporate Japan repeatedly to put more of their profits back into higher wages and expenditure. His economy minister, Akira Amari, told reporters this week that the best measure to support the nation’s growth would be for companies to use their cash reserves to boost pay and investment.

Reality Bites

“Kuroda keeps saying that wages will rise when the supply-demand balance tightens,” said Hideo Kumano, the chief economist at Dai-ichi Life Research Institute. “But reality continues to dash the BOJ’s expectations.”

Monthly pay of workers at large Japanese companies rose 2.59 percent this year, Keidanren, Japan’s biggest business lobby, announced after the spring wage talks. Base pay for regular workers, excluding bonuses and overtime, rose by less than 1 percent in each of the first nine months of this year.

The BOJ kept its pledge unchanged to increase the monetary base at an annual pace of 80 trillion yen ($648 billion), a policy that’s weakened the yen and help inflate the profits of Japan’s large exporters.

It also helped push Japan’s inflation higher and back into line with its peers in the Group of Seven nations, until a rout in the oil market pushed prices lower in many advanced economies. The most recent reading for the BOJ’s core inflation gauge was -0.1 percent. Prices excluding fresh food and energy rose 1.2 percent.

In its monetary policy statement Thursday, the BOJ said that “inflation expectations appear to be rising on the whole from a somewhat longer-term perspective,” though it added that “some indicators have shown relatively weak developments.”

‘Patchy Remarks’

Kumano said that Kuroda made some “patchy remarks” during his briefing, while "maintaining his bullish stance.”

“If patchy remarks start to dominate his tone, then it would be a sign for further easing,” Kumano said. “But there’s still a long way to that point and I didn’t think Kuroda’s bullishness could disappear completely.”

The BOJ has said that the inflation trend is improving, while noting that it is ready to adjust policy if needed. Kuroda said in the briefing Thursday that there was no need to change the view that price expectations in Japan are rising over the longer term.

Economists are divided into two camps -- one expecting further easing early next year and another projecting no further action for the foreseeable future.

Economists Survey

Twenty-one of 41 economists surveyed forecast the bank will add stimulus by April 2016 while 19 don’t expect additional stimulus, according to the poll conducted from Nov. 13-17. One foresees further stimulus in November 2016.

Economists are almost unanimous in forecasting that the central bank won’t meet the 2 percent price target in its latest time frame of around six months through March 2017.

The BOJ board next meets in December, soon after the Federal Reserve ends a meeting. The U.S. central bank is expected to raise interest rates, based on comments by Fed officials who held out the possibility of a December rate increase.

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