Japan's prime minister Shinzo Abe managed to get prices to rise. He did that with his policy to destroy the Yen even though Japan is heavily dependent on foreign oil and food imports.
Interestingly, Abe is not precisely pleased with the results. Abe now complains that wages are not keeping up with prices. He wants a wage-price spiral on top of it all.
The Financial Times reports Bank of Japan minutes expose fears over lack of wage rises.
Board members at the Bank of Japan have expressed fears that wages are not keeping pace with higher consumer prices, as the world’s third-largest economy tries to haul itself out of more than a decade of deflation.
Minutes of the October 3-4 meeting published on Wednesday showed that members of the policy board agreed it was important that improvements in income keep supporting consumption, which was the main driver of Japan’s strong growth in the first half of 2013.
If inflation keeps ticking upwards – as the BoJ’s official forecasts suggest – then real incomes would fall, threatening momentum in the economy and casting doubt over the bank’s longer term inflation target of 2 per cent.
The disclosure of anxieties at the heart of the central bank is likely to increase pressure on the government to extract concessions from Keidanren, the most powerful of Japan’s business groups, which has not recommended a rise in total labour costs since the Lehman crisis.
Shinzo Abe, prime minister, said in October that higher wages were vital to create a “virtuous circle” that spurs consumption and investment. A government forum has met twice with private-sector representatives, including executives from Keidanren, to discuss tax cuts in return for wage increases.
In October, the Japanese Trade Union Federation, the nation’s biggest labour group, said it would take a basic pay-rise demand of at least 1 per cent into the spring labour talks.
“If citizens’ income fails to grow with prices increasing, society will plunge into turmoil,” said Nobuaki Koga, president of the federation. “Income must be raised.”
For now, evidence of a turnround in pay remains thin. Government data last week showed that regular wages excluding overtime and bonuses fell 0.3 per cent in September compared with a year earlier, marking a 16th consecutive month of decline.
Meanwhile, the weaker yen pushed up consumer price inflation to a five-year high of 0.8 per cent in August, effectively sapping households’ purchasing power.
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