Global Economics

A Setback for Abenomics as Japanese Wages Fall Again


Japanese Prime Minister Abe

Photograph by Haruyoshi Yamaguchi/Bloomberg

Japanese Prime Minister Abe

Is Abenomics working? For Japanese Prime Minister Shinzo Abe, there were early signs of success for his economic recovery plan: The yen started to fall, for instance, while the stock market began to rise. Economic growth for the second quarter came in at a healthy 3.8 percent, and the trade ministry today said industrial production is likely to show month-on-month growth of 4.7 percent in October.

The key breakthrough in the long war against deflation, though, will come with growth in wages, as more income will translate into greater willingness of Japanese consumers to spend. The prime minister told lawmakers this month that his goal is to create a “virtuous circle” of rising wages and employment that leads to greater consumption and investment. As part of the campaign to lift wages, Abe’s government last month even started talks with business and union leaders. “The key for the success of Abenomics is whether companies will raise wages,” Norio Miyagawa, a senior economist at Mizuho Securities Research & Consulting in Tokyo, told Bloomberg News.

By that measure, today was a setback for Abe. Despite his use of the bully pulpit, wages are still falling. According to the Japanese labor ministry, regular wages (excluding overtime and bonuses) fell yet again in September, dropping 0.3 percent. “Companies still aren’t confident enough that growth will be sustained and will probably hesitate to raise wages, especially base salaries, for the time being,” Miyagawa said.

The news wasn’t all bad. The housing market is rebounding, as starts in September increased 19.4 percent from a year earlier, the government announced today. That’s better than the median 12 percent expected by two dozen analysts surveyed by Bloomberg and marks the 13th straight month of improvement.

The mixed picture—improvement here, disappointment there—isn’t limited to the economic data. Japan’s electronics sector is in flux, too, as seen by the contrasting fortunes of its two most important companies: Sony (SNE) and Panasonic (6752:JP).

Sony today slashed its earnings forecast by 40 percent, as the Tokyo-based company continues to struggle in what seems to be a futile attempt to turn around its ailing television business. As recently as August, Sony was expecting profit of 50 billion yen ($509 million) for the fiscal year ending in March 2014, but today the company said in a statement that earnings would be just 30 billion yen.

The picture is much brighter at Sony’s biggest local rival. Panasonic, like Sony, hasn’t been able to keep up with Korean competitors Samsung Electronics (005930:KS) and LG Electronics (066570:KS) or low-cost Chinese producers. Unlike Sony, however, Panasonic has decided to cut its losses and shift away from its television business, focusing instead on newer sectors with more growth potential.

That’s paying off for Panasonic, with the company announcing yesterday it stands to make as much as $7 billion selling lithium batteries to Tesla Motors (TSLA), Elon Musk’s maker of high-end electric cars. Panasonic expects to earn 100 billion yen in the year ending in March, the company announced today, up from its previous estimate of 50 billion yen.

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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Companies Mentioned

  • SNE
    (Sony Corp)
    • $21.14 USD
    • 0.75
    • 3.55%
  • 6752:JP
    (Panasonic Corp)
    • $1446.0 JPY
    • 22.50
    • 1.56%
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