Can Japan’s Corporations Kick-Start Recovery?


The economic data unveiled this week and the government elections and stimulus package rolled-out in response have had plenty of coverage here at The Diplomat, but there is another angle from which to view these churning events. Japan’s return to recession on Monday and news of the postponement of the sales tax increase coupled with an election announcement on Tuesday have coincided with the yen spiking to almost 119 against the dollar, yet Japanese companies seem to be riding out this turbulence tolerably well, making record dividend payments this year. This is partly due to the weak yen, as exports have increased and the overall trade balance has improved, yet the fate of Japan’s economy and its workers is less hopeful.

Government data showed on Thursday that the Japanese trade deficit narrowed a substantial 35.5 percent annually in October, primarily due to exports helped by the weaker yen and lower international oil prices, which have been a substantial portion of imports since the country’s nuclear reactors went offline. According to the data, last month exports increased by 10 percent while imports only went up by 2.7 percent. Additionally, Etsuro Honda, a “close economic advisor to [Prime Minister Shinzo] Abe” according to the Wall Street Journal, has indicated that the yen fluctuating somewhere between 120 and 125 to the dollar would be acceptable, while its current level is “absolutely a plus for the economy from the macro perspective.”

The Nikkei Asian Review meanwhile reports that listed Japanese companies are set to pay record returns to stakeholders, as much as 10 trillion yen ($83.8 billion) in fiscal 2014.  It notes that while “more than 90% of companies on the first section of the Tokyo Stock Exchange bumped up [employee] compensation in fiscal 2014,” there is no clear indication that this increase was anywhere close to what was given to shareholders or reinvested, as the 3 percent sales tax increase this year has bitten into wage earners’ purchasing power.

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Government statements would tend to support this assumption. Abe asked during a meeting with leaders of both labor and business for corporate Japan to “raise employee wages in order to help prop up the flagging economy” on Wednesday. Rising wages, initially expected to come about due to a shrinking labor pool and greater productivity, are a part of the “virtuous economic cycle” that Abe hopes will bring the country out of deflation and onto a more stable growth trajectory.

It would appear that at the moment Japan’s major corporations are weathering this current economic downturn through a mixture of rising exports (helped by the weak yen) and profits from investments and operations abroad. However, translating that corporate resilience into support for the national economy is not an easy process, and clearly not one that Japan has managed to work out.

Author’s Note: This is my last piece for The Diplomat. I have thoroughly enjoyed my time here, writing primarily on Japanese and Northeast Asian geopolitics, yet now I am going back to analyzing risk in a private capacity. I am truly in debt to those of you who have read and commented on my pieces. Your insights and observations have kept me on my toes. While I might wish for greater civility in the comments, the debate here is robust and usually on point. I look forward to keeping track of The Diplomat and its readers in the future, especially as the magazine grows into its new iterations. Many thanks to the staff and readers who have given me such a wonderful experience.

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