Japan Inc. Hoards Record Cash as Abe Targets Wage Gains

Japanese companies’ cash holdings rose to a record last quarter, highlighting Prime Minister Shinzo Abe’s struggle to spur the investment and wage increases needed to end a 15-year deflationary malaise.

Corporate holdings of cash and deposits rose to 224 trillion yen ($2.15 trillion), up 5.9 percent from a year earlier, according to a Bank of Japan report released yesterday.

The yen’s 17 percent slide against the dollar this year has boosted exporters’ profits, contributing to a cash pile similar in size to Russia’s gross domestic product. As Abe campaigns to reflate the world’s third-biggest economy, he’s relying on company spending to drive a longer-term recovery once the jolt from fiscal and monetary stimulus wears off.

“Companies still have a deflationary mindset,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. “It will take a while for them to start to increase investment and wages.’”

The Bank of Japan’s latest Tankan survey showed large companies lowering their projections for investment this fiscal year, which ends in March. Regular wages excluding overtime and bonuses fell 0.7 percent in October from a year earlier, a 17th straight monthly decline.

Abe’s Plea

The yen was trading at 104.41 per dollar at 12:54 p.m. in Tokyo, after earlier touching its weakest level since October 2008, following an announcement by the Federal Reserve that it will dial back its monthly bond buying. The Topix index fell 0.4 percent, breaking a three-day climb.

The BOJ today maintained its unprecedented easing while signaling progress in its fight against deflation, targeting an annual expansion of 60 trillion to 70 trillion yen ($670 billion) in the monetary base. The decision was in line with forecasts of all 35 economists surveyed by Bloomberg News.

In an interview this month, Abe urged companies to increases wages faster than the cost of living to break the legacy of deflation.

“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.

No Evidence

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. The next one is today, with those attending to include Hiromasa Yonekura, head of the Keidanren business lobby and chairman of Sumitomo Chemical Co., according to the cabinet office.

The central bank’s efforts to drive 2 percent inflation are adding urgency to the task as consumer prices start to pick up. In addition, Abe needs to navigate the economy through a sales-tax increase in April that will damp consumption and is forecast to trigger a one-quarter contraction.

Large companies plan to boost spending by 4.6 percent in the year ending March, compared with a 5.1 percent projection three months earlier, the BOJ’s quarterly Tankan survey showed this week.

“We still don’t find any evidence that corporates are really starting to get confident about the sustainability of the recovery and actually ramping up domestic investment,” Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong, said this week. “And that remains a worry in an environment where consumption is going to weaken next year.”

Besides highlighting the amount of cash held by Japanese firms, the BOJ report also showed them ramping up overseas investment at the fastest pace in 15 years to a record 63 trillion yen. Sixty percent of Japanese companies with operations in Asia plan to expand business there in the next one or two years -- up 2 percentage points from last year, according to a Japan External Trade Organization survey released Dec. 12.

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