Japanese Prime Minister Shinzo Abe is on his mark to put a sign of economic hardship to a 33-year high by surging taxes and financial values in the middle of unmoved salaries.
The misery index, which adds the unemployment rate to the level of inflation, will skyrocket to 7 percentage points in the three months beginning April 1 when Japan hikes its sales levy to 8 percent from 5 percent, according on the median projections of economists in Bloomberg News surveys of jobless and consumer financial values. That would be the topmost mark for the measure since June 1981 when Japan was arising out of depression after the oil shocks in the 1970s.
Bank of Japan financial stimulus made to trigger economic development and reach 2 percent inflation has bring down the yen by 6.8 percent in the past 12 months, eroding the worth of wages to a record low. Abe, the son of an ex-foreign minister who grew up in a house with servants, is in the hot seat from the opposition party after the cost of living increased to a five-year high.
“Inflation is really tough,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees more than $77 billion. “Those who speak favorably about inflation might have been born in wealthy families and never experienced the hardship that inflation brought.”
The yen exchanged at 103.07 per dollar as of 11:54 a.m. in Tokyo. It plummeted 18 percent last year, the steepest decline since 1979, increasing inflation through greater import costs. Consumer financial values rallied 1.4 percent in January from a year ago, in almost five-year high of 1.6 percent increase in December, administration report revealed last month.
National Burden
Japan’s 10-year sovereign yield was at 0.62 percent, the weakest internationally. It declined to as low as 0.57 percent on March 3, a level unseen since May 7, and will stay below 0.9 percent this year, analysts surveyed by Bloomberg forecast. The bond market will be “resilient,” Ishigane said.
The country is increasing the sales levy as it is having a hard time to pay for care of the world’s most rapid aging society. The ratio of tax and social security costs to national revenue is projected to increase to the topmost mark ever at 41.6 percent in the fiscal year starting April, according to a Ministry of Finance report released last month.
“We need higher wages to offset the ballooning burden,” said Hidenori Suezawa, a financial market and fiscal analyst at SMBC Nikko Securities Inc., one of 23 primary dealers obliged to bid at government bond auctions. “As inflation quickens, the value of pensions people receive will decline in real terms.”
Lagging Wages
Salaries have not caught up with the surging cost of living and have yet to ripple through to the broader labor market. Wages sagged down nationwide in the year through January and will surge less than 1 percent this year, according to economists surveyed by Bloomberg. In a December 6 interview, Abe called for firms to increase salaries faster than inflation.
A worker in Japan earned an average of $34,138 in 2012 based on the exchange rate taking account of the differences in the cost of living, data from the Organization for Economic Development and Cooperation showed. That’s the 11th worst among the 29 nations recorded and compares with $55,048 in the U.S.
The opposition Democratic Party of Japan will stop Abe’s hasty moves and urge the premier to alter his policy, Banri Kaieda, the DPJ leader, said on March 7. “Bad inflation” driven by yen weakness is bolstering burdens on small firms and households, he said at a convention held by the Japanese Trade Union Confederation.
Toyota Raise
Toyota Motor Corp., projecting a record 1.9 trillion yen ($18 billion) earning this fiscal year, settled to hike base wages in Japan for the first time since 2008. The average Toyota Motor Workers’ Union member will earn 2,700 yen more in base pay per month, the nation’s biggest carmaker declared today. Toyota also will pay an average bonus of 2.44 million yen, the equivalent of 6.8 months of salary and the most in six years.
Firms including Fujitsu Ltd., Panasonic Corp. and Hitachi Ltd. will increase base pay by 2,000 yen ($19) a month, the first hike in six years, the Nikkei reported on March 9.
Nippon Telegraph & Telephone Corp.’s eight major group firms, including its mobile-phone unit, NTT Docomo Inc., will also hike base wages, the newspaper reported the next day. NTT, about 33 percent owned by the government, employs 227,000 workers.
The misery index, made by American economist Arthur Okun to record standards of living, was at 5.1 percentage points in January, near the five-year high of 5.4 percent in November. That’s still lesser than 8.3 percentage points in the U.S., where the unemployment rate will be at 6.6 percent this quarter, compared with 3.9 percent in the Asian country, based on analyst projections.
Ending Deflation
“Exiting deflation is positive for growth because it assists recovery in the job market,” said Takuji Aida, the Tokyo-based chief economist for Japan at Societe Generale SA, another primary dealer. “Even as the pace of growth in pay per worker lags behind the rise in the cost of living, expansion of employment will increase total wages.”
The administration has yet to finalize on whether to go ahead with a planned second hike in the consumption levy to 10 percent in 2015. Abe is due to detail development actions in June after allowing a 5.5 trillion yen extra budget in December to offset setbacks of a greater tax.
Seventy percent of 34 economists predicted that the Bank of Japan will add to its unprecedented stimulus between now and the end of September to control the economy through an estimated contraction in the second quarter, according to a Bloomberg survey conducted February 26 to March 4. Gross domestic product will plunge an annualized 3.9 percent in April-June period, the steepest decline in three years, another Bloomberg poll of economists predicts.
“The sales tax will add to pressures of bad inflation,” said Yasunari Ueno, the chief market economist at Mizuho Securities Co. “It’s possible the government will be forced to delay the second increase to 10 percent.”
