The missing link to Japan's Abenomic recovery is and will be wage inflation: without it, soaring import costs which have more than offset any benefits from a modest rise in exports (and a still negative trade balance), will be for nothing, and if the wealth effect begins slowing or, heaven forbid, reversing, and the USDJPY slides back under 100 dragging the Nikkei down with it and all those hedge funds who scrambled into Japan with hopes of get rich quick dreams exit stage left, all bets are off.
The result, ironically, would be an even worse bout of deflation than the country had in the recent past as all Abenomics will have done is pulled demand forward driven by transitory stock market gains, while far stickier import energy costs hammer the consumer's discretionary cash flow. In the meantime, corporations aren't waiting, and in a need to protect their bottom lines are doing to selling prices what they have zero intention of doing to wages and costs: hiking them.
So following in the footsteps of many other luxury, and not so luxury, goods makers, Apple was the latest to announce overnight that it is hiking the prices of select iPad and iPod models by 16% and 14% respectively.
From Bloomberg [11]:
Apple Inc. (AAPL) raised the price of iPad tablet computers and iPod music players in Japan after a weaker yen that’s boosting importing costs prompted Toshiba Corp. and Fujitsu Ltd. to consider increasing prices.
Apple now sells the iPad Wi-Fi model with 16 gigabytes of memory for 49,800 yen ($493), compared with its previous price of 42,800 yen, according to Apple’s website. The iPod Shuffle music player costs from 4,800 yen, compared with the previous starting price of 4,200 yen.
“We made some pricing adjustments due to changes in foreign exchange rates,” Takashi Takabayashi, a spokesman for Apple in Japan, said by phone today. He declined to elaborate.
The yen weakened beyond 101 against the U.S. dollar earlier this month for the first time since April 2009 as Prime Minister Shinzo Abe spearheads measures to drive down the currency and end deflation. Fujitsu, a Tokyo-based maker of personal computers, said this month it plans to raise domestic prices. Toshiba said May 8 it may boost prices for televisions and PCs.
The nation’s consumer prices excluding fresh food fell 0.4 percent in April from a year earlier, the statistics bureau said today, compared with a 0.5 percent drop the prior month. The inflation rate hasn’t been above zero in the past year.
So to recap: the Japanese consumer is currently facing soaring energy and food costs, and ever higher prices of core "luxury" goods. The same consumer whose wages are flat at best. For the time being, the Nikkei225 has been a viable offset to plug the difference. However, the Nikkei225 is now approaching a bear market correction from its recent highs, which in turn will crush any consumption animal spirits Japanese households may have had, leading to even more risk asset selling.
In other words, there is no way this ends well unless Japan somehow passes a law making wage hikes mandatory. And with the country now literally all in on what is already a failing economic experiment, this may not be too far off. What happens after? One word - full banana republic status.