One of the main reasons for the failure of Abenomics is that while Abe has been largely successful in boosting import prices as a result of the collapse in the Yen, his policies have been a failure when it comes to achieving the only thing that truly matters for achieving benign inflationary pressures: pushing wages higher. We first pointed this out all the way back in late 2014 in a post titled "The Abenomics Devastation: Japanese Real Wages Decline For Record 16 Consecutive Months."
Back then we said, somewhat jokingly, that "in other words, when Japan turns to wage controls some time in 2015, a move that is now essentially assured as Japan has gone all in on central planning, it will demand that corporations boost pay to part-timers first, and then force all corporations to hike wages across the board."
Almost two years later, we find that we were both right and wrong. We were wrong in our estimate that Japan's wage controls would take place in 2015: we were off by about a year, but ultimately we were right that as Japan's last ditch attempt to boost the economy it would launch a form of wage controls. That's what the latest member of Abe's cabinet hinted at today.
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Recall that on Wednesday, Abe rotated some key positions in his cabinet, and appointed Kozo Yamamoto, an outspoken lawmaker who advocates firm political oversight of the Bank of Japan, as minister in charge of regional revitalization. Yamamoto has previously called for radical remedies for Japan’s economic ills. After the 2011 earthquake and tsunami, he suggested the central bank underwrite government debt to fund reconstruction. The veteran lawmaker has hosted study groups that helped shape Abe’s economic policy, while continually pushing at the boundaries of debate.
Kozo Yamamoto, Japan's new minister in charge of regional revitalization
As Bloomberg reported, in a 2015 interview, Yamamoto said he was worried that the BOJ was wavering in its commitment to huge monetary stimulus and that Governor Haruhiko Kuroda might be contending with a “den of conspirators.” His solution: enshrine the 2 percent inflation target in the BOJ law to ensure the current policy continues long after Kuroda’s term ends. “Yamamoto is a mastermind of Abenomics and coming into the cabinet makes him a closer adviser,” said Yuji Shimanaka, chief economist at Mitsubishi UFJ Morgan Stanley. “Monetary policy and the BOJ are his lifework and his beliefs won’t waver at all. Yamamoto will keep paying close attention," said Shimanaka, who has known Yamamoto for almost two decades.
Well, Yamamoto is back, and he has not wasted any time in pushing his radical policy prescriptions. The key of these is precisely what we said would happen in 2014: wage controls.
"I think it might be necessary to encourage a discussion throughout all ministries about a wage target policy," Yamamoto told reporters in Tokyo on Thursday morning. The veteran lawmaker, whose formal job description is minister responsible for regional revitalization, has made it clear he won’t be tied down with a narrow focus.
Yamamoto also focused on his favorite topic: politicizing the BOJ and making it a "helicopter money" printing extension of the government. In a press briefing that also covered agricultural competitiveness, jobs and incomes in regional areas, Yamamoto spoke repeatedly about the Bank of Japan. It must strive to meet its 2 percent inflation target as soon as possible, and it has policies at hand to stoke price gains to 1.5 percent-plus by the middle of next fiscal year, he said.
As Bloomberg adds, how much influence he will have remains to be seen, but his role hosting study groups and prodding the boundaries of debate have already helped shape Abe’s economic policy.
The details are familiar to readers, as yet one more story that was widely ignore by the mainstream press suddenly emerges front and center: the biggest failure of Abenomics, namely the lack of wage growth. From Bloomberg:
In pushing the notion of targeting specific increases in wages, Yamamoto, 67, is taking on one the key failings of Abenomics to date. Stagnation in wages is holding back household spending in Japan and undercutting efforts to generate the kind of steady gains in consumer prices needed for a healthy and expanding economy.
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While Japan’s unemployment rate is just 3.1 percent, and the number of job advertisements outnumbers applicants, there is little pressure for higher incomes. An increasing number of workers are employed on part-time and temporary contracts, and have little bargaining power. Meanwhile, many of those in regular, permanent positions are focused on maintaining their job security rather than agitating for pay rises. The latest figures for labor cash earnings are scheduled to be released Friday, with estimates pointing to a 0.3 percent increase in June from a year ago. This follows a 0.1 percent drop in May and no change at all in April.
So while Japan may have won a brief reprieve from being the modern financial system's "helicopter money" Guinea Pig, it may not avoid being the first developed country to launch wage controls. Naturally, since forced higher wages mean far lower profits, we look forward to Abe's response when the local stock market (if such a thing still exist) tumbles on that realization, undoing all of Nikkei225's artificial gains over the past few years, and forcing Abe and the BOJ to implement even more aggressive monetary policies, in what will be the final lap on the race to destroying the Japanese currency.
As we said in the title: a "desperation step", and one which sadly does not have a happy ending.