Initiatives that have been a part of his third arrow, structural reform to promote growth:
From joining the negotiations for the Trans-Pacific Partnership (TPP) to introducing specially deregulated zones (my own office will oversee their implementation), my government is committed to catalyzing economic recovery by all means available.
But Abe wants to draw attention to the “wage surprise” as a key part of the third arrow:
[T]he wage surprise stands out, because only when the long-missing link between corporate profitability and wages is restored will investment in houses, cars, and other durables, and household consumption in general, finally rid Japan of its deflation and put its economy on a sustained growth path.
Abe believes Japan is experiencing the emergence of a “national consensus” or “a shared sense that the government, major industries, and organized labor should work together to increase wages and bonuses (while facilitating incentives that could enhance productivity).”
Abe has been a part of discussions with government leaders, union leaders and company executives, so I think he has a good sense of the budgeting plans that are in store. One such example is the head of Toyota, a company that reportedly has not raised wages since 2008.2 Moreover, unions such as the All Toyota Workers Union have pushed for higher wages, and revenue at many of the exporters has been growing due to the weakening yen, giving some flexibility in the budgets.
Wage growth will be a key to generating consistent inflation. In December, Japan’s cash wages stabilized after 17 straight months of decline.3 We need to see this metric start to rise in the coming months, as Abe suggests. Only when consumers and business leaders have confidence that their income prospects are good and set to grow will they choose to increase their spending. A continued boost to wages both this year and in the future will be a key element to Japan resetting inflation expectations toward the 2% that Abe and the Bank of Japan desire.
More positive wage growth trends, if they emerge, will be a key sign Abenomics is still on track. I believe investors will continue to look for the Japanese investment themes that stem from Abenomics, and I think we are still only in the beginning phases of Japan’s economic and equity market revitalization. Throughout this week I will discuss new ways to participate in Abenomics via specific equity themes geared to these trends.
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1Source: Shinzo Abe, “Why Wages in Japan Are Set to Rise,” World Economic Forum Blog, 1/7/14 (https://forumblog.org/2014/01/why-wages-in-japan-are-set-to-rise/).
2Source: Tom Essaye, “Wage-Push Inflation Is Japan’s Next Bullish Driver,” Forbes, 12/31/2013.
3Source: Ben McLannahan, “Japan Wages Halt 17-Month Decline,” Financial Time, 12/27/13.
Important Risks Related to this Article
Investments focused in Japan are increasing the impact of events and developments associated with the region, which can adversely affect performance. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations.