Bank of Japan (BOJ) Governor Haruhiko Kuroda yesterday called on Japan Inc to deploy its cash and invest more on facilities and workers, saying “the rule book for business will be rewritten” as the economy emerges from deflation.
“This is a great chance,” Kuroda said in a speech at the Tokyo headquarters of the Keidanren, Japan’s biggest business lobby. “Firms that are able to get ahead of a change in the environment promptly and to adapt to the economy in an expanding equilibrium will become the winners of the competition and enjoy prosperity in the new era.”
The remarks underscore Kuroda’s bid to get companies to buy into efforts by the central bank and Japanese Prime Minister Shinzo Abe’s administration to shake Japan out of two decades of stagnation. While profits are soaring with a weaker yen, companies are hoarding record amounts of cash, cutting capital expenditure and failing to boost wages quick enough to keep up with rising living costs.
“Kuroda is working very hard to convince companies to help revive the economy,” said Maiko Noguchi, an economist at Daiwa Securities Co and a former BOJ official. “Kuroda offered an optimistic outlook on the economy — that was more like his determination to make that happen than an outlook.”
Kuroda, handpicked by Abe almost two years ago to spearhead the fight against deflation, led a decision on Oct. 31 to expand already unprecedented monetary stimulus, which gives the central bank leeway to buy from the market every new bond issued by the finance ministry.
The yen has lost about 29 percent against the US dollar since Abe took office in December 2012, helping drive up earnings of big exporters, including Toyota Motor Corp, which forecasts a record profit for the year through March next year.
Companies’ cash and deposits climbed to a record ￥233 trillion (US$1.9 trillion) at the end of September, having increased every quarter for the past six years, according to the central bank.
Wages have failed to keep up with inflation that’s been driven by the bank’s easing and a sales-tax increase in April. Consumer prices rose 2.9 percent in October from a year earlier, while cash earnings were up 0.2 percent.
Kuroda’s remarks echoed a speech last month in Nagoya, where he urged business leaders to use profits more productively, saying hoarding cash will become costly as deflation ends. Companies could boost investment in facilities and jobs, taking advantage of the weaker yen, he said.
Falling consumer prices in the years of stagnation made holding cash a viable option for companies seeking safety and real returns on capital. Now, with the central bank suppressing borrowing costs, the calculus is going to change, according to Kuroda.
The bank’s easing has helped to drive the gap between the return on real assets and on financial assets to historical highs, according to Deutsche Securities Inc economists led by Mikihiro Matsuoka in Tokyo.
“The incentive for companies and households to draw down financial assets and purchase real assets is rising,” the Deutsche Securities economists wrote in a Dec. 19 research note.
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