Japanese profits surge, but not wages

posted on January 11, 2016

Bosses hold back on pay raises for workers, creating a major stumbling block for Japan's 'Abenomics' strategy for economic growth

If there is any boss who is in a position to give his workers a raise, it ought to be Yasuyuki Yoshinaga of Fuji Heavy Industries Ltd.

Propelled by a red-hot U.S. market, the maker of Subaru cars is set to post a record profit this fiscal year of about $3.5 billion, more than triple the figure three years ago.

But when asked about raises, Mr. Yoshinaga offered that he would think about it. "I'd like to pay back our employees for their hard work," he said, but "we need to be cautious about fixed costs." He added, "I'm not being stingy."

Whatever adjective one prefers, chief executives like Mr. Yoshinaga are one of the biggest challenges for Prime Minister Shinzo Abe as he faces a make-or-break year for his Abenomics growth program.

Corporate profits are strongly up, and even inflation has tiptoed into positive territory, when excluding the effects of plunging oil prices. Attracted by the weaker yen triggered by Abenomics, the number of foreign tourists visiting Japan is likely to come close to 20 million when the final figure for 2015 is announced this month, blowing away the previous record by more than 6 million.

But Mr. Abe's plan to lift Japan permanently out of its quarter-century of stagnation has always counted on more than that. He envisions a virtuous cycle, where higher profits translate into higher wages and more spending.

The wages part is where the cycle is breaking down. Government data released Friday showed that real wages fell 0.4% in November from a year earlier, ending a four-month string of modest rises.

Wage negotiations in Japan traditionally take place in February and March ahead of April 1, when the fiscal year begins for most companies. Facing elections for parliament's upper house in the summer, Mr. Abe has stepped up pressure on companies to raise wages and spend some of their nearly $2 trillion in cash.

source by wsj
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