A feature of 2022 has been the interest-rate increases by many central banks and the consequent rises in bond yields. But one namely the Bank of Japan has taken a different road as whilst the originator of Abenomics Shinzo Abe is sadly no longer with us the man he appointed as Governor of the Bank of Japan has continued with the same policies. So whilst the US has raised its official interest-rate to 3 3/4% to 4% Governor Kuroda has stuck to -0.1% leaving Japan as the only country with a negative interest-rate.
One Abenomics arrow was a lower value of the Yen to boost economic competitiveness for Japan’s exporters and to get inflation higher towards the target of 2% annually. As The Japan Times reports this has been achieved this year.
From a starting point of ¥115 to the dollar at the beginning of the year, the yen reached a three-decade low of almost ¥152 to the dollar at the end of last month. And despite the Bank of Japan’s reported purchase of ¥6.35 trillion ($42.3 billion) in stealth currency intervention measures throughout October, the yen is still hovering at around ¥147 to the dollar.
I am not so sure about the “stealth currency intervention” description as it was pretty clear at the time. But finally the plans for Yen devaluation have come to fruition and in fact is anything suceeded too well as we have seen the Bank of Japan intervene to slow the fall.
Another objective of Abenomics was to end deflation and hence the lost decade by getting inflation to run at 2% per annum. Well according to NHK News we are there.
Japanese consumers are feeling the pinch as prices continue to rise. The internal affairs ministry said on Friday that the consumer price index, excluding fresh food, climbed 3 percent in September from a year earlier.
Japan has not seen that level of increase since August 1991, except for when the consumption tax was increased.
The government and the Bank of Japan have set an inflation target of 2 percent to pull the country out of deflation. September was the sixth straight month that the figure exceeded that mark.
Actually the advance numbers for Tokyo were at 3.5% for the headline. So according to both Abenomics and the Bank of Japan this should be some sort of nirvana but as you can see Japanese consumers are not so keen presumably related to the fact that food prices are up by 6.1% on a year ago.
Where is the economic boom?
The Bank of Japan summary of opinions look positive until you realise that there estimate of potential growth is basically 0% and maybe 0,5% if you are feeling generous.
Thereafter, as a virtuous cycle from income to spending intensifies gradually, Japan’s economy is projected to continue growing at a pace above its potential growth rate.
Also they seem to immediately lose confidence in that thought.
The pace of economic recovery in Japan is likely to decelerate in fiscal 2023, mainly because
overseas economies are expected to slow.
That is a bit awkward because Japan has seen some economic growth this year with the second quarter revised up to 0.9% it has yet to reach the previous peak. Plus the timescale below shows how long Japan has been in something of a malaise.
It is important to encourage households’ long-term and stable asset formation that takes into account expenditure over their lifetime, so that economic growth will lead to an increase in their disposable income.
What about wages?
This was supposed to be the next step where wages growth picked up and drove domestic consumption. How is that going?
The labor ministry’s preliminary figures show that the average wage for the month, including base and overtime pay, was 275,787 yen… or nearly 1,900 dollars.
That’s up 2.1 percent in yen terms from a year earlier, and is the ninth consecutive month of increase. ( NHK News)
As you can see it starts well although we already note that they see fit to mention 9 months of increases meaning nominal wages have previously fallen. But then we see something very familiar.
But workers may not be feeling the benefit. The average real wage, taking inflation into consideration, dropped in September by 1.3 percent from a year earlier. That was the sixth straight month of decrease. ( NHK News)
Even the government effort to spin matters ends up admitting we remain at square one.
Ministry officials say it has been rare in recent years to see a 2 percent rise in wages in September, when companies do not usually give out bonuses.
But they say real wages remain on the decline, as prices keep rising.
If we switch back to the Bank of Japan summary of opinions I have a real problem with this bit.
In achieving the price stability target of 2 percent in a stable manner, nominal wage increases are essential. Monetary easing contributes to a rise in such wages through channels of tightening labor market conditions and of higher inflation expectations due to price rises.
As this has been going since 2013 where have the nominal wages increases been hiding. We have some now but they are below inflation.
This provides an enormous problem. Because Abenomics which as we have noted above is succeeding ( if we assume for a moment that wages are about to finally turn a corner). But the economic growth was supposed to end this sort of thing.
TOKYO, Oct 27 (Reuters) – Japan will unveil on Friday a fresh spending package of more than $200 billion that includes steps to curb electricity bills, sources told Reuters, which could tame inflation next year and help the central bank justify keeping ultra-low interest rates.
To be specific the economic growth partly helped by a fiscal boost that was temporary would lead to economic growth which would improve the fiscal position. Whereas not only have we seen stimulus packages become like a carousel I note that this one is set to reduce the inflation that has been the policy objective!
“Of components that make up the consumer price index, the subsidies would affect electricity and gas bills. Technically, they will push down Japan’s inflation rate in January-March,” analysts at Daiwa Securities said in a research note.
Implied in the stimulus package is the view that wages will not cover inflation. Thus we see that Jaki Graham was right.
Round and around and around round
Round and around and around round -That’s what you do
Round and around and around round.
So we end up with government debt levels like the one below.
TOKYO — Japan’s government debt per capita surpassed 10 million yen, or roughly $75,000, for the first time at the end of June, data released Wednesday shows, as Tokyo poured money into tackling both the coronavirus pandemic and inflation. ( Nikkei Asia)
On a superficial level policy in Japan is working as they now have inflation and a lower Yen. But with it comes costs and let me now bring in the demographics issue of an ageing and shrinking population.
The resultant narrower pay gap with emerging Asian nations has made it particularly difficult for Japan’s construction and nursing-care industries to hire the workers they need. ( Nikkei Asia)
Japanese wages have struggled plus the Yen has fallen. So there is an issue here. On addition a lower Yen is raising energy costs at a time they have risen anyway. Japan negotiated long-term deals which was wise but new deals will be expensive and an issue for the future.
Whilst Japanese industry has done pretty well this has not filtered through to its workers.
Considering that corporate profits have been at high levels on the whole ( Bank of Japan)
Also looking ahead things are deteriorating.
Japan Leading Economic Index below expectations (101.6) in September: Actual (97.4)……..Japan Consumer Confidence Index came in at 29.9, below expectations (31.5) in October. ( FX Street )
That is a little awkward when you already have your foot to the monetary floor.