Friday, 17 January 2014
Japan - The wage growth vs inflation conundrum
"In fact, the confidence of the people is worth more than money." - Carter G. Woodson
With JPY down substantially since the start of the Abenomics experiment, Japanese inflation data has been naturally edging up these last few months, mostly reflecting the marked-up prices of imports, notably energy . Japan Consumer Durables Prices rise for the first time since 1992 - graph source Bloomberg:
With the much awaited VAT hike coming in early April, headline CPI data will get another shot in the arm.
All that is fine and dandy, but what about the wages part of the equation? Well...not much according to this telling chart from the UBS Global Macro team, who is making a, interesting, albeit depressing, point on the large exporters/small SMEs divide (emphasis ours):
"Figure 1 shows that wages have yet to respond positively to Abenomics and BoJ policies; i.e., there is no wage growth. Some of the larger exporting firms will most likely raise wages this year, given improving profit margins due to a weaker yen. But remember that SMEs account for over 99% of Japanese firms and provide more than 70% of employment. SMEs are not benefiting from a weaker yen in the same way that large exporting firms have; indeed some are being negatively affected because their input costs are rising. Most SMEs are not exporters. They are service-related firms and domestic oriented. Many are simply not profitable enough to raise wages." - source UBS, Macro Keys
Will a potentially squeezed middle-class still show much love for the "Abe show" will be left if the wage growth/inflation spreads widens substantially post VAT-hike? Something to follow closely in the months ahead, we think.
In the meantime, as UBS says: "Great News - It's Not Working", a policy failure meaning more BoJ easing ahead...
For more on Japan see our 2013 posts:
"Credit - If at first you don't succeed..." - 13th of January 2013
"Japan - the rise of the Kagemusha" - 16th of March 2013
"Have Emerging Equities been the victims of currency wars?" - 21st of March 2013
"Credit - Big in Japan" - 7th of April 2013
"Success is often achieved by those who don't know that failure is inevitable." - Coco Chanel