Abe Stimulus Risks Fizzling as Citigroup Sees Japan Job GapMayumi Otsuma
Japan’s 10.3 trillion yen ($116 billion) fiscal stimulus may add less than a quarter of the jobs the government predicts, casting doubt on Prime Minister Shinzo Abe engineering a sustained recovery.
Even with more central bank easing, most of the impact of Abe’s spending won’t spread far beyond public works projects, Citigroup Inc. says. It estimates that 100,000 jobs will be created, compared with the government’s figure of 600,000. BNP Paribas SA says 150,000.
Abe is returning to a strategy that failed to end Japan’s stagnation over the last two decades even as the nation’s debt burden nearly tripled and extra stimulus spending totaled 80 trillion yen, according to BNP Paribas. Another failure may deepen voter apathy in a political system that has produced seven prime ministers in six years, while adding to the risk of a surge in bond yields.
“Fiscal stimulus is like morphine, because if you want to maintain the same level of effect you have to keep upping the dose,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “Japan has failed to achieve a sustainable economic expansion, and the country’s record proves the strategy is wrong.”
The Abe administration has also sought a cheaper exchange rate, correcting from what Cabinet members say has been excessive gains, which have eroded exporters’ competitiveness. The yen resumed its decline today after two ministers were reported saying there’s no change in the government’s stance. The yen jumped two days ago after Economy Minister Akira Amari said an excessively weak yen had negative effects.
Amari told reporters in Tokyo today that his comments this week were misinterpreted and that the yen is still in the process of correcting. Trade Minister Toshimitsu Motegi was quoted by Kyodo News today saying there’s no shift away from tackling a strong yen.
The yen snapped a two-day rally, falling 0.2 percent to 88.69 per dollar as of 4:06 p.m. The Nikkei 225 Stock Average gaining 0.1 percent, reversing earlier declines.
Yields on the 10-year government bond touched 0.73 percent, the lowest since Dec. 17. The benchmark sovereign debt yield is the lowest in the world after Hong Kong and Switzerland.
JPMorgan Chase & Co. said today it sees Asian Development Bank President Haruhiko Kuroda as the main candidate to replace BOJ Governor Masaaki Shirakawa in April. Opposition leader Yoshimi Watanabe said in an interview yesterday that the next BOJ chief shouldn’t be a former central bank bureaucrat.
The Japanese government poured 33.8 trillion yen into stimulus measures in the 1990s, with 45 trillion yen added in the 2000s, according to estimates from BNP Paribas based on Finance Ministry data.
The average economic growth rate decelerated from 4.6 percent in the 1980s to 1.1 percent in the 1990s and 0.8 percent in the following decade, according to the brokerage.
More than a third of the spending package announced last week will go to disaster prevention and reconstruction after the March 2011 earthquake and tsunami. Extra spending will boost gross domestic product by about 2 percentage points, the government said.
“There’ll be a positive effect on construction, but it won’t ripple out to other industries,” said Kiichi Murashima, Citigroup’s chief economist in Tokyo. “Companies are hesitant to expand payrolls until they’re sure demand will improve.’
Low unemployment may be masking challenges as older workers exit the labor force and wages stagnate in a nation struggling to emerge from a third recession in five years.
‘‘At stake is whether wages will rise,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management. “Abe will probably keep stimulating the economy through yen depreciation and fiscal spending, but that won’t induce a rebound in fundamentals that are crucial for jobs.”
The jobs-to-applicants ratio, a barometer of supply and demand, peaked in August and looks set for a cyclical downturn, according to Takuji Okubo, chief economist at Japan Macro Advisors and formerly of Goldman Sachs Group Inc. Wages have failed to rise for nine of the past 12 months.
“So far, Abe has presented no concrete remedies to reverse the southbound trend of Japan’s job-market,” Okubo said. “We can’t help but be skeptical about the employment outlook.”
Citigroup predicts that economic growth will rise to 2.2 percent in the fiscal year from April before falling to 0.3 percent the year after. Nomura Securities Co. says growth will be 1.8 percent in the year from April and at 0.3 percent in the following 12 months.
Japan’s government debt probably climbed to 237 percent of annual economic output last year, the most in the world, according to International Monetary Fund estimates.
While the unemployment rate fell to a four-year low of 4.1 percent in November, the rate among those aged 15-24 was 6.5 percent.
“Companies won’t increase hiring unless they’re convinced that the economy will keep improving for two, three or four years,” said Yoshiki Shinke, chief economist at the Daiichi Life Research Institute in Tokyo. “Growth expectations have weakened so much and it’s hard to change perceptions.”