Japan’s inflation may rise faster than wages

December 31, 2013 - 9:57:35 am

People do last-minute New Year’s shopping in Ameyoko district in Tokyo yesterday. Japan’s core consumer prices rose 1.2 percent in November from a year earlier, accelerating to a fresh five-year high, government data showed, marking a steady progress towards beating 15 years of deflation.

TOKYO: Japanese employers will fail in the next fiscal year to heed Prime Minister Shinzo Abe’s goal of wage increases that outpace inflation, highlighting risks that the nation’s recovery will stall, surveys of economists show.

Labour cash earnings, the benchmark for wages, will increase 0.6 percent in the year starting April 1, according to the median forecast in a poll of 16 economists by Bloomberg News. Consumer prices will climb five times faster, increasing 3 percent, as Japan raises a sales tax for the first time since 1997, a separate Bloomberg survey shows.

The squeeze on consumers from higher prices risks undermining public support for Abenomics and dragging on retail spending, unless Abe can convince companies to boost wages to cushion the blow. At stake is sustaining a recovery in the world’s third-biggest economy, set to expand this year at the fastest pace since 2010 as Abe tries to drive an exit from 15 years of deflation.

“Wage increases will be slower than the rise in prices at least until 2015, dealing a blow to Prime Minister Abe,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. 

In an interview in Tokyo this month, Abe urged companies to increase wages faster than gains in the cost of living. “For us to escape deflation it is extremely important that wages rise,” Abe said on December 6.

Cash earnings rose 0.5 percent in November from a year earlier, breaking four months of decline, government data showed last week. Wages excluding bonuses and overtime were unchanged, ending a 17th-month slide. Consumer prices rose 1.5 percent, the most since 2008.

Corporate profits have soared as Abe’s reflationary policies bolster confidence and drive down the yen. Abe said yesterday at a Tokyo Stock Exchange closing ceremony that Abenomics will be a “buy” next year as well.

The prime minister has pressed Japan Inc to pass some of the windfall to workers through higher base pay, in meetings with business and union leaders since September. The three sides said in a joint statement this month that increased profits should be linked to wages. 

Japan can’t wait one or two years for salary gains, which are needed sooner for the economy to enter a virtuous cycle of rising profits, wages and growth, Deputy Economy Minister Yasutoshi Nishimura said.

Honda Motor Executive Vice President Tetsuo Iwamura said on December 13 that the carmaker will set pay based on reaching profitability targets, rather than government directives on how fast to increase compensation.

Any increase in wages depends on a pick-up in demand, not just pleas by Abe for companies to do their part for economic recovery, said Kaoru Yosano, a former finance minister, in October.

Negotiations set to take place around March between trade unions and management known as “shunto” — or the spring wage offensive — will set the direction of base pay for the coming fiscal year. For the first time since 2008, the Keidanren business lobby will support an increase, the Yomiuri newspaper reported.

Japan’s jobless rate held at 4 percent in November, while there was one job for every applicant — the most since 2007 — in a sign that a tighter labour market may encourage higher pay. The economy is set to grow 1.6 percent next year, compared with an estimated 1.8 percent in 2013, according to Bloomberg News economist polls.

Japan’s sales tax will rise to 8 percent from 5 percent in April, helping government efforts to rein in the world’s heaviest debt burden, while dealing a blow to growth. The economy may shrink an annualised 3.9 percent in the second quarter, before returning to growth, according to a Bloomberg survey.

WP-Bloomberg

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