Japan Wages Must Rise for Abenomics Success: GS Matsui

Japan Wages Must Rise for Abenomics Success: GS Matsui

Prime Minister Shinzo Abe’s success in reviving the world’s third-largest economy hinges on wages rising more than the Bank of Japan’s 2 percent inflation target, according to the investment strategist the premier has invoked as an authority on the country’s need for growth. “We need to see wages beat the cost of living here,” Kathy Matsui, chief Japan strategist for Goldman Sachs Group Inc., said in an interview at the investment bank’s Tokyo offices today.Japan’s stocks rallied more than any other developed market this year as the central bank deployed unprecedented monetary easing in a bid to end 15 years of deflation. With the yen’s decline boosting corporate profits, Abe is calling on companies to raise salaries to sustain consumption ahead of a sales-tax increase in April.

Executives here “are not oblivious to the fact they hold the key,” Matsui, 48, said. “They know that if they don’t raise wages and real incomes don’t grow, that could seriously hurt Abenomics.”

Earlier this year, Abe cited Matsui for her long-running “Womenomics” report as the prime minister aims to increase female participation in Japan’s labor market.

Biggest Gain

The Topix (TPX) index surged 44 percent in 2013, heading for its biggest annual gain since 1999. The Nikkei 225 Stock Average yesterday closed at its highest since December 2007.

Goldman Sachs boosted its 12-month outlook for the Topix index to 1,450 from 1,400 on Nov. 21, saying earnings per share will double in the 2014 fiscal year compared with 2012. The new target is 17 percent higher than today’s close.

Households face the prospect of sustained inflation for the first time in almost a generation, a dynamic that could hurt spending unless wages also rise. Prices excluding energy and fresh food climbed 0.3 percent in October from a year earlier, the most since 1998.

Japan’s Government Pension Investment Fund, the world’s biggest pool of retirement savings, today said the central bank will fail to reach its goal of spurring 2 percent inflation, which the BOJ said it would achieve in about two years. GPIF President Takahiro Mitani said a 1 percent rate “may be possible.”

In today’s interview, Matsui said that if price expectations are rising then there should be a rational shift in the GPIF’s asset allocation “away from domestic fixed income into other asset classes.”

Stimulus Package

Japan plans an 18.6 trillion yen ($181 billion) package to counter the impact of an increase in the consumption levy in April to 8 percent from 5 percent now, according to an official who asked not be named, citing government policy.

Salaries extended the longest tumble since 2010 in the same month. Regular wages excluding overtime and bonuses fell 0.4 percent in October from a year earlier, a 17th straight monthly decline, the labor ministry said yesterday.

“Many people assume that if wages don’t go up then consumption won’t go up, but they’re forgetting about the wealth effect,” Matsui said. Higher sales of luxury goods “imply there’s still something going on, despite the pretty lackluster backdrop of wage growth.”

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Matthew Winkler in New York at mwinkler@bloomberg.net

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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