Can anything rescue Japan from the abyss?

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Can anything rescue Japan from the abyss?

Nearly four years into its bid to extricate itself from low growth and high debt, Abenomics is at risk of becoming a "busted flush"

Nearly four years into its bid to extricate itself from a low growth and high debt trap, Abenomics risks becoming a "busted flush", warn economists

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Shunto season has failed to grip Japan.

The countrys annual Spring assault on wages seems to have passed with little more than a whimper this year despite being billed as one of the most anticipated economic events in Japans recent history.

Translating as spring wage offensive, Shunto marks the annual Japanese ritual of wage bargaining between business groups and labour unions.

This years negotiations have been preceded by months of feverish lobbying from prime minister Shinzo Abe who has urged the countrys business groups to raise wages and help smash Japans deflationary mindset once and for all.

Spring in Japan marks the start of the country's annual wage negotiations

Spring in Japan marks the start of the country's annual wage negotiations

The issue has become the latest lightning rod in the countrys two decade struggle to ensure long-term economic prosperity.

Japan still can't generate inflation

Higher salaries encourage consumption and are vital in raising inflation. This in turn would help erode some part of Japans record 250pc of GDP debt pile.

Abe's calls have been echoed by some of the worlds most renowned economists.

Olivier Blanchard, the former chief economist at the International Monetary Fund and Adam Posen, a former Bank of England policymaker, have called for an unprecedented 10pc increase in nominal wages in 2016. In the last two years, average wages have risen by just 1pc.

What is needed is a jump-start to a wage-price spiral of the sort feared from the 1970s, say Posen and Blanchard, who call for a virtuous cycle of wage growth, inflation, and lower debt to release Japan from economic stagnancy.

What is needed is a jump-start to a wage-price spiral of the sort feared from the 1970s

Adam Posen & Olivier Blanchard

Japan Inc.: cash rich, wage poor

But like so many of Tokyos radical attempts to extricate itself out of low growth and low inflation, the early signs show that Shunto has already fallen flat.

Car-making giant Toyota is reported to have agreed on a wage settlement which will boost its employees basic wages by just ¥1500 ($13) a month, despite recording bumper profits of ¥2.17 trillion ($19bn) last year.

Members of the workers' union of Toyota Motor Corp raise their fists during a rally for the annual "shunto" wage negotiations at the company headquarters in Toyota

Members of the workers' union of Toyota Motor Corp raise their fists during a rally for the annual "shunto" wage negotiations at the company headquarters in Toyota

Overall, the fruits of 2016s Shunto are set to be more meagre than those of last year. The March round of talks indicate wages hike demands from unions to be around 3.27pc this year, lower than the 3.74pc of 2015, according to analysts at UBS.

This indicates the average eventual wage hike will be around 0.3pc in 2016 for the country's 63.5m workers, down from 0.69pc agreed in 2015, calculate economists at JP Morgan.

This reticence to raise wages puzzles economists.

Nearly four years on from the start of the governments Abenomics programme, Japanese companies are sitting on a record cash piles equivalent to nearly 50pc of the countrys entire GDP.

Octogenarian pickpockets underline Japan's 'grey' crime crisis

Export-oriented sectors have benefited from a cheaper currency while record low interest rates and monetary stimulus has helped ease financial conditions for over three years.

Non-financial corporations cash and deposits - Japan compared to the rest of the world

Non-financial corporations cash and deposits - Japan compared to the rest of the world

Other labour market indicators are also showing encouraging signs.

Unemployment has fallen to just 3.2pc, its lowest level since 1997. The ratio of available jobs to applicants also points to further declines in joblessness to come. More and more women and elderly Japanese have also recently entered the workforce to plug labour shortages.

And yet wage inflation remains the elusive missing ingredient in Japans nascent revival.

If the Abe administration were able to achieve this, it would help enormously in combating the economic malaise that has dogged the country for much of the past two decades, note economists at Fathom.

'A busted flush?'

In recent months, Abenomics feted arrow of central bank stimulus has been accused of overshooting to such an extent that it is now actively hindering wage growth and denting business confidence.

Specifically, the Bank of Japans landmark decision to enter negative interest rate territory at the start of January has ushered in a new wave of panic rather than comfort over the power of central banks to stimulate moribund economies.

Negative interest rates have sparked global concerns over the profitability of commercial banks and led to stock price falls across the developed world.

How global stocks have performed this year

How global stocks have performed this year

Japans foray to sub-zero rates - intended to help weaken the currency - has also seen the yen unexpectedly strengthen by 7pc against the dollar.

This appreciation places a further constraint on wage largesse.

Firms are surely incorporating the recent strengthening of the yen into their profit forecasts for this year, says Marcel Thieliant at Capital Economics.

Having decided to carry out the most radical experiment in monetary stimulus in modern history , buying up 80 trillion yen in government debt every year, there is now increasing disquiet within the ranks of the central bank.

Central banks are already doing the unthinkable - you just don't know it

The initial decision to plunge into negative rates territory caused a five-four voting split among the BoJs nine members in January.

Following the market paroxysms, two members of the Policy Board voted to change the interest rate structure to provide greater protection for commercial lenders.

Haruhiko Kuroda, central bank governor, has admitted that the computer systems of some market participants have suffered from technical problems as a result of the negative-rate transactions.

Mapped: Where in the world have rates turned negative?

Abenomics is now risk of becoming a busted flush warn Fathom, as the economy is trapped in a unique bind.

For the last two decades, Japan's ever rising national debt has helped support growth in nominal GDP, or the total cash size of the economy.

But with the pace of economic growth falling behind rising debt, and inflationary pressures failing to materialise from either higher wages or a weaker currency, Japans policy mix seems to have hit the buffers.

In their three-pronged assault on stagnation, Japan's policymakers have only succeeded in generating cognitive dissonance, says Duncan Wooldridge at UBS.

It's not just about achieving a 2pc inflation target. The deeper issue has always been that government debt has been consistently growing faster than the economy for years," says Wooldridge.

With the economy having contracted sharply at the end of last year and inflation currently flat at 0pc, the Bank of Japan is widely expected to unleash another round of interest rate cuts and more QE next month.

The embattled Abe government meanwhile will be hoping the eventual outcome of this year's Shunto - unveiled in June - may still provide some light relief.

The struggle continues, says Wooldridge.

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[TBoneTX 46,379]

(Gosh, that's hard to follow with all the extraneous text...)

This seems to be a case of "out of the bedpan, into the ___..."

[Sousuke 1,214]

One would think less workers would create a labor shortage spurring wage inflation. I guess at the end of the day its all about exports for Japan, though they have a similar issue to the US in that alot of corporate money is effectively held hostage on the sidelines of the economy.

[Teddy B 17,252]

Jacque, you post another article that's spaced out like that and it's off to the produce aisle with you!

[Jacque67 7,328]

Jacque, you post another article that's spaced out like that and it's off to the produce aisle with you!

Yes, please;) looking for Spooks!!!