Savings tapped as pay falls: ‘Abenomics’ on notice

Savings tapped as pay falls: ‘Abenomics’ on notice

31% of households lack financial assets

BLOOMBERG

NOV 8, 2013

The share of Japanese households with no financial assets rose to a record high as falling incomes forced people to dig into their savings, highlighting the potential for widening disparities under “Abenomics.” The proportion reached 31 percent, according to a Bank of Japan survey released Thursday in, up from 26 percent a year earlier and the highest since the poll began in 1963. The BOJ surveyed 8,000 households of two or more people aged 20 years or older from June 14 though July 23.Prime Minister Shinzo Abe needs to convince companies to drive up workers’ pay so he can sustain an economic recovery jump-started by fiscal and monetary stimulus and maintain public support. Already facing declines in wages, households will be hit in April by a consumption-tax increase intended to shore up Japan’s finances.

“It’s critical that Abe succeed in convincing (corporations) to raise wages,” said Izumi Devalier, a Hong Kong-based economist at HSBC Holdings PLC. “Lower-income households may come to feel they’re getting the short end of the stick from Abenomics.”

Among households whose assets fell, 40.9 percent said that declining regular income forced them to draw down their savings — the top explanation. Japan’s salaries extended the longest slide since 2010 in September, with regular wages excluding overtime and bonuses falling 0.3 percent from a year earlier, a 16th straight drop.

“The survey shows a grim wage situation,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Now some companies are hinting at higher salaries, so we may see a better result next year.”

The deterioration in household financial strength serves as a reminder of Japan’s challenges just as concerns rise that the Abe administration will limit the magnitude of structural reforms in its self-described growth strategy.

The health ministry this week decided that a bill on Internet sales of over-the-counter drugs should exclude certain medicines. This drew criticism from Hiroshi Mikitani, the billionaire head of online retailer Rakuten Inc., who said Wednesday that he would take legal action if the legislation becomes law, and leave a key government panel on industrial competitiveness.

Robert Feldman, head of Japan economic research at Morgan Stanley MUFG Securities Co., said the health ministry’s decision is a “major reversal for Abenomics.”

“Without quick and decisive leadership from Abe himself, there is a higher risk that Abenomics will fail,” Feldman wrote in an emailed note Thursday. “Markets could start to reflect this risk soon.”

The policies dubbed Abenomics have weakened the yen, boosted exporters and fueled an almost 60 percent gain in the Topix Index in the past year.

Even so, income disparities could widen.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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