A Bad Week for Abenomics as Top Employers Squelch Pay Demands

  • Early indications point to disappointing spring wage round
  • Higher pay viewed as key to achieving inflation target

Japan’s most profitable company and one of its biggest public-sector employers dealt damaging blows to the Abenomics project this week, putting in doubt whether the goal of wage-driven inflation can be achieved.

One of the key gauges for sustaining Japanese consumer-price increases is the annual wage talks between companies and labor unions, the so-called Shunto that’s held each spring. A shrinking pool of workers in the world’s most-aged society had been pinned as a possible driver for higher salaries. So far, the indications for a significant bump in wages aren’t positive. 

Creating the appearance of an own goal, the government-majority owned Japan Post Holdings Co. blamed the latest policy move at the Bank of Japan -- led by Prime Minister Shinzo Abe’s nominee Haruhiko Kuroda -- for foregoing any base pay rise the coming year. The BOJ’s adoption of negative interest rates could have a "large impact," the company said. As one of the nation’s biggest employers, with almost a quarter million workers across the country, the decision forms an awkward benchmark for Abe.

Meanwhile, Toyota Motor Corp., a prime beneficiary of BOJ policies that spurred a weaker yen, told its union last week it would be difficult to increase monthly base wages even by 1,000 yen ($9) -- about the price of a bowl of ramen noodles. That was in response to the union’s request for a 3,000 yen rise, already smaller than the past two years. One problem: the yen has begun rising again this year, leaving companies less confident their record profits are here for the long haul.

‘Another Headwind’

"The early results of the Shunto spring wage negotiations have been disappointing to policy makers hoping to see faster wage gains," Capital Economics Ltd. analysts Marcel Thieliant and Mark Williams wrote in a note. "The major car makers and electronics firms have agreed smaller base pay hikes than they did a year ago. If other firms follow suit, as seems likely, the Bank of Japan will be faced with another headwind to its efforts to lift inflation."

The nation’s trade unions began to pare back their own wage demands earlier this year as the yen strengthened, hurting price sensitive exporters.

Early indications show an average 0.47 percent increase in monthly Japanese base wages, according to data released by the Japanese Trade Union Confederation, known as Rengo. That compares with 0.69 percent last year.

Real Earnings

Workers in Japan eked out a 0.1 percent raise in 2015, while incomes dropped by 0.9 percent after adjusting for inflation. Real earnings have declined for the past four years, holding back consumer spending.

Kuroda, for his part, said this week that the economic environment is set for wage growth. Economy Minister Nobuteru Ishihara said that pay gains are continuing.

Beating deflation through a mix of super-charged monetary easing, fiscal stimulus and regulatory overhaul has been at the core of Abe’s economic policy since he took office in 2012. So far that program has returned only mixed results as the economy swung in and out of contraction and as inflation remains stuck on zero, far off the BOJ’s 2 percent target.

The economy shrank in the final three months of last year, the fifth quarterly contraction since Abe returned as prime minister. The BOJ this week indicated more asset purchases and adjustments to its negative rate remain on the table in an effort to boost inflation.

The disappointing wage outcome comes as a new opinion poll found that Abe’s Cabinet approval rating fell 3.8 percentage points to 42.6 percent, the first decline since September, according to a Jiji survey. Abe faces upper house elections in July.

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