Good News for “Abenomics” and Japanese Wage Growth

March 21, 2014 | David Hernandez, CFA, Director of Traditional Manager Search

In an attempt to revive the long struggling Japanese economy, Prime Minister Shinzo Abe implemented his “Abenomics” strategy which included an unprecedented open-ended asset purchase program. The monetary easing policy was implemented with the goal of spurring domestic spending and increasing exports via a devalued currency. Equity investors reacted positively to the plan and the MSCI Japan Index returned 27.4% in 2013. With both corporate profits and business confidence rising, the initial results of “Abenomics” appear promising.

To keep things on course, Japanese companies will need to boost workers’ wages, a phenomenon that has rarely occurred for earners. This week’s chart shows the year-over-year change in wage earnings has been largely negative over the last 24 months. However in recent weeks during the annual wage negotiations (known as “shunto,” which translates to “spring offensive”) between unions and employers, several large companies, including Toyota, Honda, and Toshiba announced significant wage increases for the first time since 2008. Now economists will observe whether medium and small size companies follow suit. A rise in wages will help continue the initial positive momentum created by the monetary easing policies of “Abenomics” and could mean Japanese equities still have some upside left.

David Hernandez, CFA
Director of Traditional Manager Search

Get to Know David

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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