Japan’s wealth gap widens under Abe economic policies

While corporations, investors gain, poorest citizens endure program cuts

TOKYO — Hiroyuki Kawanishi’s tiny two-room apartment in Japan’s capital may not be much, but it’s home. With Prime Minister Shinzo Abe trimming benefits for the poor as he increases spending on the military and cuts corporate taxes, Kawanishi says he won’t be able to afford the rent.

“If the housing subsidy is cut, I’ll lose my apartment,” said Kawanishi, 42, who was born with cerebral palsy and can barely fit his wheelchair next to the single bed in his 400-square-foot apartment. “I’ll have to go to a government nursing home with no freedom. There’ll be no point in living.”

Since Abe took office two years ago, aggressive monetary easing devalued the yen, bolstering earnings at big companies and lifting the stock market 70 percent. It’s been good for exporters and those who own shares and property, but not so good for those without assets. For them, Abenomics means higher prices and dwindling government support.

“If inflation accelerates further under Abe’s policies, inequality will widen,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. “The socially vulnerable and low-income classes will be worst affected, and a cut in livelihood subsidies deals them a double punch.”

Abe is facing a problem that is dogging developed economies from the U.S. to Australia: how to sustain a recovery without widening the wealth gap. More than 30 percent of households in Japan have no financial assets, up from 26 percent in 2012, according to the Central Council for Financial Services Information in Tokyo.

Abe’s government is seeking to lower subsidies for housing and winter heating allowances for the poor as part of a three-step program that began in August 2013 to trim welfare costs, including for food, clothes and fuel.

The move is part of the government’s efforts to contain rising social security costs as Japan’s aging society pushes up medical and other welfare expenses. The world’s third-largest economy is also the biggest debtor among the advanced economies, with borrowings projected by the International Monetary Fund to swell to more than 245 percent of gross domestic product in 2015.

Welfare makes up almost a third of the $818 billion budget for the fiscal year starting April 1, with livelihood subsidies for people like Kawanishi accounting for $24.3 billion. As the country ages and the wealth gap widens, the number of households claiming those subsidies rose to a record 1.62 million in October, almost half of them with elderly members over 65.

For Japan’s poor, the struggle to retain their own homes is a legacy of the country’s industrial history. The postwar housing model developed around the nation’s large and powerful companies, which owned or leased blocks called shataku, where new, young employees lived until they earned enough to buy their own places. Over the past two decades that promise of jobs and lifelong employment has waned, swelling the ranks of those who can’t afford to buy.

“Japan has relied on companies to provide housing subsidies, so belonging to big companies and being able to work continuously affect the stability in residential status.” said Yosuke Hirayama, professor of housing and urban studies at the graduate school of Kobe University. “Relying on firms or families creates inequality.”

Those who can’t afford to rent or buy a private flat may end up in one of the government’s low-rise, wooden apartment blocks. The proportion of these subsidized dwellings in the housing stock fell to 12.5 percent in 2013, from 19.5 percent in 1998, government data show.

“The socially vulnerable, the elderly or the handicapped may be facing difficulty in renting housing,” Hirayama said.

Kawanishi gets a $586 subsidy to help pay the $688 monthly rent for his 27-yearold apartment. Faded posters of 1980s pop star Minako Honda are stuck on the wall and the floor is covered with piles of books and newspapers, leaving almost no room to move around in the tiny space. Kawanishi said he covers the rent shortfall and food costs mostly from his savings.

Nor is it only the poor who are falling behind in Abenomics. The growing wealth gap is also splitting the middle class and creating a disparity between younger and middle-aged workers, said Hidenori Suezawa, a financial market and fiscal analyst at SMBC Nikko Securities Inc.

Japan used to boast of being all middle-class when rapid postwar growth brought jobs and wealth to salaried workers. That has been eroded as more workers are hired parttime or on temporary contracts, typically at lower pay.

The proportion of nonregular workers in the labor force grew to 37.4 percent in 2014 from 35.1 percent in 2011, with part-time workers accounting for nearly half, according to government data.

Abenomics “helps high-income families more than ordinary workers; it’s just the way it works,” Allen Sinai, head of Decision Economics Inc., said in an interview on an annual visit to Tokyo last month. He said the effects of quantitative easing take a long time to filter down to lower-income families. “Be patient. I’m not sure there are other choices.”