BOJ’s $3.5-T cash changes little for ordinary Japanese

IT has been the most radical cash injection in history—a staggering $3.5 trillion, pumped into Japan’s economy over more than five years to slay deflation and kick growth into higher gear.

That’s still not enough to save Tomoaki Nagai’s metal parts factory near Osaka and it’s a similar story throughout the world’s thirdlargest economy.

North of Tokyo, Hiroyuki and Machiko Hayashi of Utsunomiya worry about Hiroyuki’s lack of job security as a wedding photographer. And in Akita, taxi driver Takeshi Kikawa struggles to make ends meet when interest rates on low-risk investments are near zero.

Their stories, and those from two dozen interviews with young couples, factory owners, financial planners and taxi drivers from Akita to Okinawa reveal a sobering reality for Prime Minister Shinzo Abe’s Abenomics revival plan: The BOJ’s massive monetary experiment just hasn’t been the game changer Governor Haruhiko Kuroda was tasked to deliver.

True, some people are breathing a bit easier. Since Kuroda launched the BOJ’s radical stimulus, the economy has grown around 1.2 percent annually, moderately better than its potential rate. The yen’s steep fall versus the dollar, which exceeded 60 percent from its strongest level, has helped the Toyotas of the world, pushing corporate profits to record levels and, earlier this year, stocks to 27-year highs. Worker pay adjusted for inflation has fallen 0.7 percent a year—which is actually progress after years of declining nominal pay. But the Japanese people’s “def lationary mindset,” partly a result of the dark cloud cast on their economic future by an aging and shrinking population, has proved too tough to overcome. As the focus turns to its end game even though inflation remains only halfway to its 2-percent target, the BOJ’s ultimate job—selling a growth story to the Japanese people—remains unfinished.

You can actually count the Hayashis among the more upbeat. They took out a 35-year mortgage to build a new house near Utsunomiya station last year. An interest rate of 0.7 percent helped, but the biggest reason for their confidence is that Machiko is a teacher in a public high school, which gives her nearly unbreakable job security in Japan’s two-tier labor market, where more than a third of the work force is largely stuck in lower-paying, temporary jobs.

“I’ll be working until I’m 60, so that really gives me a sense of security,” she said. “But we’ll have some money in retirement, so I’m optimistic.”

Their biggest worry? Hiroyuki’s job as a wedding photographer puts him on the other side of that labormarket divide. Even with unemployment near a quarter-century low, the insecurity that hangs over those workers makes it tough for them to get married and have children, or to plan for any future at all.

This is one reason the lack of deep restructuring of the labor market that was urged by so many economists ranks among the Abe government’s biggest failures—a missed opportunity for lasting, consequential change.

Hiroyuki says his work has given him an up-close view of a growing economic divide in Japan, one reflected in the weddings he photographs. Some people spend lavishly, while others can’t afford a reception at all. Hiroyuki got a raise last year but “non-regular” workers still have a long way to go to catch up.

“There’s really some growing distance between the upper and lower classes in Japan,” Hiroyuki said.

One person who says she is definitely better off now than when Kuroda took over the BOJ is Mami Ichikawa, a financial planner at Mitsui Sumitomo Aioi Life Insurance Co. in Tokyo. Ichikawa said she feared a dark future when she lost her sales job after the global financial crisis, but she began studying investing so she could be better prepared financially.

This led to her current position helping others with financial planning. Her commission-derived income has doubled over the past five years and she’s spending a little more as well, she said.

“Both in terms of my financial situation and time, I have more room to breathe now,” Ichikawa said.

Give a little credit to the BOJ for helping to drive Ichikawa into more aggressive investments, including mutual funds and stocks. Ichikawa said she became convinced that mild inflation is taking hold in Japan, but that interest rates on savings accounts will remain stuck near zero. So she looked for higher returns.

“I thought my savings would keep losing value if left on their own,” she said. That’s just the kind of thinking Kuroda was looking for when he drove interest rates to record lows. Ichikawa’s experience also showed how a historic labor shortage is helping many workers: It is more possible than ever to switch jobs and careers as companies that would previously hire only fresh graduates find themselves forced to turn to mid-career applicants.

At 39, Ichikawa is a member of Japan’s “lost generation,” which came of age in the long, grim aftermath of the nation’s asset bubble. Many missed out on the entry-level career-track positions that have been so crucial to long-term prosperity in Japan. Now, though, Ichikawa said there are more f lexible options for work and for earning extra money, giving her more confidence about navigating the future.

“If you make the effort, you can get results,” she said.

Near Osaka, factory owner Nagai tells a different kind of story: one about a long decline that hasn’t been noticeably slowed by the BOJ’s policies or Abenomics.

While big exporters’ profits have swelled due to a weaker yen, many of the smaller manufacturers such as Nagai who remained onshore and who have traditionally supplied parts to the big ones are struggling.

Nagai, who came to Osaka to join Japan’s post-war industrial revival a half century ago, says bigger companies are relentless in demanding ever-cheaper parts, slashing into his income for years. Every year, more and more shops around him shut their doors, he says. “I’ve gained nothing from Abenomics,” he said.

Nagai said he’s down to five part-time workers and even with interest rates at rock-bottom levels it’s too risky to invest in the business. He depleted most of his savings getting through the aftermath of the global financial crisis. Now he’s just holding on.

“I used to think there is no way I will end up at a nursing home but now I’m jealous of those who can afford to get in,” said Nagai, who is 68. “I don’t have that money. I’ll have to work as long as I can.”

In Akita, taxi driver Takes hi Kik aw a faces a common struggle among the elderly: making ends meet when interest rates on low-risk investments are near zero. Kikawa lives in the prefecture with the oldest population, lowest birth rate and highest death rate.

On Mondays and Tuesdays, he said, about 4 out of 5 passengers are other elderly people going to or from the hospital for appointments. At 73, Kikawa still wants to work as long as possible, and lives with the worry that the government will cut his monthly pension payments as it grapples with its massive debt. That puts him in good company. Many people in Japan, including the young, are frugal because of concerns about surviving in retirement.

A robust economic revival—particularly the return of a healthy rate of inflation, a key BOJ goal—could bring some relief to all pensioners by letting the government “outgrow” its debt, the biggest in the world as a share of the economy. But there is no sign of that happening. The BOJ simply can’t fix the demographics that, without deep spending cuts and steep tax hikes, would eventually bring about fiscal ruin.