Ja­pan govt mulls pay hike to ad­dress weak con­sumer spend­ing

The Pak Banker - - BUSINESS -

Tokyo: Ja­pan's gov­ern­ment is con­sid­er­ing pres­sur­ing com­pa­nies to raise wages again next year as the econ­omy stalls due to weak con­sumer spend­ing, sev­eral gov­ern­ment sources said. Prime Min­is­ter Shinzo Abe's gov­ern­ment has nudged ma­jor com­pa­nies into rais­ing wages for the past two years in the spring with a se­ries of meet­ings with ma­jor busi­ness lob­bies and labour unions.

Voices are now grow­ing within the gov­ern­ment to use the same tac­tic for next year's wage ne­go­ti­a­tions, the sources said, af­ter data this week showed the econ­omy shrank in the sec­ond quar­ter as ex­ports slumped and con­sumers cut back spend­ing. Abe took of­fice in late 2012 with a pledge to van­quish decades of de­fla­tion and eco­nomic malaise with struc­tural re­forms and mon­e­tary eas­ing, but con­sumers have been cau­tious and in­fla­tion has ground to a halt. The gov­ern­ment's pre­vi­ous re­quests have lifted salaries at Ja­pan's largest firms, but this has so far failed to spread through the broader econ­omy. This strat­egy has also drawn crit­i­cism that the gov­ern­ment is in­ter­ven­ing too much in the pri­vate sec­tor.

Pri­vate con­sump­tion, which makes up about 60 per cent of gross do­mes­tic prod­uct, fell 0.8 per cent in April-June from the pre­vi­ous quar­ter, or dou­ble the pace forecast by econ­o­mists, data on Mon­day showed. Fig­ures from Ja­pan's top labour unions show wages are ris­ing mod­estly, but this has yet to be seen in broader data com­piled by the gov­ern­ment. Real wages fell 2.9 per cent year-on-year in June, which was the fastest pace of de­cline in seven months.

The Bank of Ja­pan (BOJ) is try­ing to guide con­sumer in­fla­tion to 2 per cent some­time around the first half of fis­cal 2016, but the core con­sumer price in­dex rose only 0.1 per cent in the year to July, weighed down by lower energy prices. The gov­ern­ment is also con­sid­er­ing a new fo­rum with pri­vate-sec­tor com­pa­nies to en­cour­age more cap­i­tal ex­pen­di­ture, the sources said, as busi­ness in­vest­ment has also been weaker than ex­pected. Both the gov­ern­ment and the BOJ con­sider cap­i­tal ex­pen­di­ture an im­por­tant driver of growth be­cause this can cre­ate jobs, lead to higher salaries and in­crease pro­duc­tiv­ity.

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