Japan’s Savings Rate Turns Negative in Challenge for Abe

Japanese drew down savings for the first time on record while wages adjusted for inflation dropped the most in almost five years, highlighting challenges for Prime Minister Shinzo Abe as he tries to revive the world’s third-largest economy.

The savings rate in the year through March was minus 1.3 percent, the first negative reading in data back to 1955, the Cabinet Office said. Real earnings fell 4.3 percent in November from a year earlier, a 17th straight decline and the steepest tumble since December 2009, the labor ministry said today.

A higher sales tax combined with the central bank’s record easing are driving up living costs, squeezing household budgets and damping consumption. Abe’s task is to convince companies to agree to higher wages in next spring’s labor talks to sustain a recovery.

“Households are suffering from a decline in real income,” said Hiromichi Shirakawa, an economist at Credit Suisse Group AG who used to work at the Bank of Japan.

Abe is trying to generate a virtuous cycle in the economy, where higher incomes fuel consumer spending, which in turn prompts companies to boost investment and wages. Last week he secured a pledge from business leaders to do their best to boost pay next year.

The government will aim for wages to increase faster than inflation next year, Economy Minister Akira Amari said last week. BOJ Governor Haruhiko Kuroda said yesterday he’d watch the spring wage talks “with strong interest.”

Aging Population

The savings rate, which the Cabinet Office calculates by dividing savings by the sum of disposable income and pension payments, peaked at 23.1 percent in fiscal 1975.

As Japan’s population ages, its growing ranks of elderly are tapping their savings, according to the Cabinet Office. Consumers also ran down savings to make purchases ahead of a sales tax-increase in April, the first since 1997.

The report offers perspective on a debate of decades ago over Japan’s trade surplus with the U.S., which caused periodic bouts of tension between the military allies. While respective savings rates have moved in opposite directions, the U.S. still had a $56 billion deficit with Japan in the first 10 months of 2014, U.S. government data show.

Trade Relations

Japanese officials for years rebutted American pressure on their commerce policies by attributing much of the trade gap between the two nations to Japan’s higher savings rates. The central bank chief said in 1993 that Japan’s trade surplus would remain because of its high savings rate. The country’s top trade negotiator was cited in 1994 saying “Americans should save more, and Japanese should spend more” to balance trade.

While Japan’s household savings rate is now negative, Americans are still net savers. The personal saving rate was 4.4 percent in November, according to a U.S. government report.

At the government level, the U.S. is also more parsimonious. The federal budget deficit will amount to about 5.5 percent of gross domestic product this year, according to the International Monetary Fund. Japan’s fiscal gap is seen at 7.1 percent.

Labor Shortage

Japan’s shrinking workforce is intensifying a labor shortage that Kuroda has said will prompt an increasing number of companies to boost pay to secure workers.

Today’s data showed there were 1.12 jobs available for every person seeking a position, the most since 1992. The jobless rate, at 3.5 percent, remained at lows unseen since 1997.

The preliminary wage data released today lack a large enough sample and include some biases, so the final figures may be revised upward, according to Hiroaki Muto, an economist at Sumitomo Mitsui Asset Management Co.

“Looking ahead, wages will probably rise but not accelerate,” said Muto.

Before it's here, it's on the Bloomberg Terminal.