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Japanese Saving Rate Negative, Budgets Drained by Inflation, Falling Wages

Posted by Joseph Trevisani on Dec 26, 2014 12:28:00 PM

japane houseabe pm

The world's most tenacious savers, Japanese households, may have reached their limit as rising prices, tax increases and sliding wages force consumers to liquidate saving accounts to maintain spending, starkly outlining the challeges for Prime Minister Abe's plans to revive the world's third largest economy.

The Japanese annual savings rate through March was minus 1.3 percent, the first negative result in data that began in 1955, reported the Cabinet Office. Real wages, earning corrected for inflation, were 4.3 percent lower in November than a year earlier. It was the 17th consecutive monthly decline and the sharpest drop since December 2009 at the height of the financial crisis, the labor ministry said today.

In contrast the United States personal saving rate was 4.4 percent in November.

The Japanese government increased the consumption tax to 8 percent in April from 5 percent in an effort to rein in government debt that at more than 200% of GDP is the highest in the world. Since being reelected earlier this month, Prime Minister Abe has decided to delay a second tax hike to 10 percent for at least one year.

Combined with the more than 40 percent drop in the value of the Yen engineered by the Bank of Japan and the subesequent jump in consumer prices for imported goods, including oil and gasoline, household budgets have been squeezed relentlessly. The decline in consumption has thrown Japan back into recession. Gross domestic product shrank 1.9 percent in the third quarter following a 6.7 percent annualized decline in the second.

Abe and other government officials are trying to convince Japanese companies to boost higher wages in next spring’s labor talks to offset the inflation cycle brought about by government policies and to help sustain an economic recovery.

The Prime Minister's economic agenda is aiming to create a upturn in the economy, where higher incomes offsets inflation and raises consumer demand, which then prompts  companies to boost investment, production and wages, in turn enabling consumers to increase spending. Business leaders, in response to government entreaties, have pledged to do their best to boost pay next year.

The government will aim for wages to increase faster than inflation next year, Economy Minister Akira Amari said last week. BOJ Governor Haruhiko Kuroda said yesterday he’d watch the spring wage talks “with strong interest.” Both comments as reported by Bloomberg.

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

 

 


 

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