Global Market | |
Global Market | |
4097 VIEWS | |
![]() |
Friday,
February 9, 2018 /9:55 AM /Fitch Ratings
Abenomics
has supported the reflation of Japan's economy in the five years since it was
launched, but is yet to have a significant impact on wage growth which has
remained stagnant even as the labour market has tightened. A sustained
improvement in nominal GDP growth could help ease the government's difficult
fiscal consolidation challenge, but growth momentum is likely to falter in the
absence of healthy wage gains, says Fitch Ratings in a Special Report from its
economics team.
Abenomics
consists of "three arrows" - loose monetary policy, flexible fiscal
policy and structural reforms - that form a policy package intended to reflate
the economy. Nominal GDP has risen by almost 10% since the policies were
introduced in early 2013, reversing a decline that had extended from the end of
the 1990s. Consumer price inflation has remained well below the Bank of Japan's
(BOJ) 2% target and inflation expectations are still very low, but measures of
domestically generated inflation have at least stabilised or increased, after
falling for two decades.
The
turnaround in large part reflects the success of ultra-loose monetary policy in
pushing real interest rates into negative territory. Private-sector lending has
picked up, suggesting loose policy has gained traction. Growth in lending to
businesses has been particularly strong, and has underpinned a rise in
investment growth.
The
sharp fall in the yen in the early stages of Abenomics may also have helped net
export volumes by spurring competitiveness and propping up business profits.
However, the currency depreciation also squeezed real wages and consumption,
and our analysis shows it had no clear effect on broad economic activity.
One
of the most striking achievements under Abenomics has been the strong growth in
employment, bolstered by a sharp rise in the participation rate as a higher
share of the female population has joined the labour force. This supply-side
improvement has more than cushioned the impact of a declining working-age
population.
Fitch
does not expect the BOJ to tighten policy by raising rates or changing its
yield target in the next two years. Nevertheless, demographic headwinds could
halt the momentum that Abenomics has created behind nominal GDP. We expect the
labour force and employment to start shrinking within the next few years
without new incentives to attract further potential entrants. There is even a
risk that Japan will slip back into deflation once employment starts to
decline, unless there is a lasting improvement in wage growth.
Wage
stagnation has been the main disappointment of Abenomics, and there is no
guarantee that labour market tightness will eventually translate into strong
wage increases. There are structural characteristics in Japan's labour market
that tend to supress wage pressures - such as an industrial relations system
that emphasises employment stability over pay increases. Low inflation
expectations have also tempered wage demands. The lack of progress on the
"third arrow" of structural reform, which was intended to address
Japan's relatively low labour productivity, has been another drag on wage
growth.
The
share of national income going to an increasingly profitable corporate sector
has risen amid weak wage growth, while the share going to labour has fallen
since the end of the 1990s. This may have dampened the recovery in aggregate
demand, given the corporate sector's high savings rate.
Reforms
to boost workers' bargaining power make real wage determination more sensitive
to labour market slack and productivity, and lift productivity growth could all
potentially help address wage stagnation, and are likely to be key to
prolonging the positive effects of Abenomics.
Related News
1. What Do Reeling Global Markets Mean for Nigeria?
2. European Commission Upgrades Growth Forecasts
3. Wall Street Rally Picks Up Pace; Looking Like A
Correction, Not A Crash
4. Stock Selloff Spreads Around the World
5. Biggest One-Day Fall For The Dow Jones Industrial
Average
6. Malaysia And Singapore To Set Up Stock Market Trading
Link
7. Could The Renminbi Challenge The Dollar?
8. FOMC January 2018 Statement: Decisions Regarding
Monetary Policy Implementation
9. UK Financial Services Industry Needs Clarity On
Post-Brexit Market Access - Lords Select Committee