Just when Japan’s employers might have thought it was safe to embrace sustained wage gains — thanks to a cheap yen and rising earnings — a turn in the exchange rate has flashed a warning signal.
The yen’s advance in the past month, especially amid market turmoil and an economic slowdown in China, shakes the notion that depreciation achieved under Japanese Prime Minister Shinzo Abe’s administration is permanent. The shift threatens to undermine annual wage negotiations in the spring that already began on a weak footing, with labor unions casting an eye at subdued economic growth.
“My concerns are becoming reality,” said Kohetsu Watanabe, president of one of the hundreds of thousands of small companies that account for much of Japan’s workforce. “I’ve got to treat the outlook of my business with a lot more caution than before.”
Watanabe runs Daikyo Seiki Co, a small machine-parts maker in Akita, northern Japan, which sells to auto-industry clients that could be hurt by a resurgent yen and weaker demand in China.
While he heeded the calls of Abe and Bank of Japan Governor Haruhiko Kuroda to boost pay the past couple of years, this year he is planning to limit wage increases to less than a third of the 7 percent bumps he gave in 2014 and last year.
“Things can turn very quickly. That is what I learned from the Lehman shock,” Watanabe said. “Japanese policymakers must realize the importance of a stable currency.”
Japanese Minister of Finance Taro Aso on Tuesday signaled that he was unconcerned about a stronger yen and market losses, saying economic fundamentals for Japanese companies are “not bad.”
However, economists see reluctance on wages among Japanese companies big and small.
With a stronger yen, Japan’s Nikkei 225 Stock Average is among the worst-performing developed markets so far this year with a 9.4 percent plunge through yesterday.
Japan’s machinery orders, a leading indicator of capital spending, dropped 14.4 percent in November last year, almost twice the decline analysts had forecast, according to a Japanese Cabinet Office report released yesterday.
Watanabe said that for now he plans to carry on with plans to upgrade machinery. At the other end of the scale, Nissan Motor Co is forging ahead with an initiative to boost domestic production to more than 1 million vehicles this year.
At Toyota Motor Corp, which saw profit jump 13 percent in the third quarter, the labor union is to seek a modest ￥3,000 (US$25.45) increase in monthly base salary at this spring’s wage talks, half of the amount requested last year, public broadcaster NHK reported.
That follows a decision by the Japanese Trade Union Confederation to aim for increases of “about” 2 percent for this year after falling short last year in a push for hikes of “at least” that amount.
In an attempt to coax unions into pushing for larger wage gains, Kuroda attended the confederation’s new year’s party on Tuesday last week and reminded leaders that “2 percent inflation is not sustainable if there is no wage increase to match it.”
While the currency hasn’t strengthened to a level that would prompt the central bank to act immediately, the bank must be watching the currency carefully because a high yen was a key reason for Japan to slip into more than a decade of deflation, said HSBC Holdings PLC economist Izumi Devalier said.
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