Bank of Japan Foiled by 'Scroogenomics'

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For a bunch of economists charged with boosting confidence, Bank of Japan staffers sure seem gloomy.

On the surface, all was well with the BOJ's 2 percent inflation target for 2015 when board members met Oct. 31. But the minutes of last month's BOJ meeting show unmistakable signs of doubt among policy makers who know more than we do about the breadth and mechanics of the world's most audacious monetary experiment. Three members dissented from the bank's preferred view. The gist of the meeting: Ending deflation is harder than the central bank expected.

Takehiro Sato wanted to add a line to the final statement declaring that consumer prices "are somewhat tilted to the downside" rather than that risks were "being largely balanced." Takahide Kiuchi proposed making the BOJ's 2 percent target more flexible. Sayuri Shirai wanted to highlight upside and downside risks to economic activity and price changes, which seems like code for what happens with inflation is, really, anyone's guess.

Why isn't the BOJ getting more traction? Blame "Scroogenomics," which is turning into a headwind that Prime Minister Shinzo Abe probably didn't anticipate while devising his program to revitalize Japan Inc.

The whole thrust of the first two waves of "Abenomics" was for massive monetary and fiscal stimulus to drive asset prices higher and the yen lower to boost corporate profits enough so that executives would raise wages. From there, as consumers spent more and a virtuous cycle of even greater corporate profits created vast amounts of new wealth, Abe would be able to engineer structural reforms to produce a genuine economic boom. But that plan is slamming into stingy corporate executives.

A Nikkei surveyof chief financial officers from 241 listed major companies released Nov. 25 tells the story. Companies are flush with cash, but are reluctant to share it with workers. Executives are plenty keen on capital spending and research and development, but not on upping salaries. Publicly traded companies that end the fiscal year in March, Nikkei said, had record combined cash reserves of about $690 billion.

The bad news: Only 7 percent of respondents said they may use some of these reserves to raise salaries. "On the whole, however, major companies remain cautious about upping wages," Nikkei said. And for that, Abe must bear some of the blame, as roughly half of CFOs believe his government's green light to raise consumption taxes from 5 percent to 8 percent in April will hurt bottom lines.

The mention of "Scroogenomics" in the accompanying Nikkei article was partly a nod to University of Minnesota economist Joel Waldfogel's book titled as such, but also to the timing of Abe's first term in office. The day after Christmas, Dec. 26, is the one-year mark for Abe's term as prime minister and his attempt to end deflation. And, well, other than importing more inflation via energy imports, he has little to show for the effort.

The problem, of course, is the very confidence BOJ officials want to generate. No matter how many times BOJ GovernorHaruhiko Kuroda promises investors that inflation is on the way, he's talking to the wrong audience. It's the scrooges in corporate boardrooms who need convincing. Not to mention his own BOJ staffers.

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Willie Pesek at