While the shift from seniority-based to merit-based compensation is of central importance, it’s also worth noting that thus far in 2015 we have seen some big compensation increases at Japanese firms. A critical goal of Abenomics is ending deflation, specifically by increasing consumption within Japan’s economy. Prime Minster Abe is doing all he can to encourage Japanese corporate leadership to raise wages 7.
Toyota, Honda, Nissan, Hitachi, Panasonic and Toshiba are six examples of large companies that agreed to give their employees large pay increases this year8. This, combined with how one of the panelists cited during his talk how fiscal policy with the raised consumption tax from 5% to 8% in April 2014 was a net drag on economic growth—but now with postponement to April of 2017—any evidence of drag from fiscal policy should dissipate. The addition of low oil prices to this equation could lead to a further improvement in the consumption picture.
It’s Good To Be Young in Japan
Japan is a land of opportunity for the young. In addition to the fact that the typical college student in Japan graduates with no debt (an amazing statistic in and of itself for those of us who were typical college students in the United States), there simply aren’t enough of them. Looking through an economics lens, you want to be where there is scarcity because the market must pay a premium for that scarcity. In theory the demand for young, educated Japanese youth will drive incomes and productivity up. While the road is by no means easy, there are reasons to be excited about Japan’s prospects as the country takes proactive steps in a positive economic direction.
Read the Japan Society Series.
As of March 31, 2015 the WisdomTree Japan Hedged Equity Index held 5.81% of Toyota; 1.05% of Hitachi; 3.02% of Honda; 3.11% of Nissan; 0.76% of Panasonic and 0.68% of Toshiba.
1Source: “The Seniority Wage System (nenkō joretsu),” Cross Currents—Learn About Japan, 2003.
2Source: Bloomberg, with TOPIX constituents measured as of 3/31/15.
3Source: Abinaya Vijayaraghavan, “Toyota to Move to Merit-Based Pay for Factory Workers: Nikkei,” Reuters, 1/26/15.
4Nyshka Chandran, “With Small Steps, Japan Wages Move towards Merit System,” CNBC, 9/26/14.
5Japan Post was a private company as of 3/31/15 and was, therefore, not eligible to be held in any WisdomTree Indexes.
6“Merit, Not Seniority, to Pay at Japan Post,” The Japan Times, 6/7/12.
7Jonathan Soble, “Japan’s Businesses Respond to Abe’s Push for Higher Wages,” The New York Times, 3/18/15.
8Soble, 2015.
Important Risks Related to this Article
Investments focused in Japan increase impact of events and developments associated with the region, which can adversely affect performance.