Posts Tagged ‘Abenomics’

Deflation Watch: New Year’s scorecard

Sunday, January 12th, 2014

Bottomless: Bargain bulk sale on diapers at discount store

Bottomless: Bargain bulk sale on diapers at discount store

In a chat with Nobel Prize-winning economist and New York Times columnist Paul Krugman, the weekly magazine Aera asked him about the prospects of “Abenomics,” which Krugman has supported. He still supports it, but thinks that the consumption tax hike to 8 percent next April was a “bad decision” that may ruin all the good things that Abenomics could achieve. He recommends that Prime Minister Shinzo Abe either cancel the increase or postpone it.

It’s probably too late for that, which explains Abe’s recent desperate attempts to get Japan’s businesses to promise to boost salaries, none of which seem to be working. In a recent Kyodo News survey of 104 “key” companies, only 17 percent say they plan to increase pay in 2014, but none will carry out basic salary increases across the board, what’s known in Japanese business parlance as “base up.” The feeling is that they’ll increase wages for some workers, maybe through bigger bonuses, but such schemes don’t instill confidence in workers, and unless workers think they will be paid more in the future than they are now, they aren’t going to spend as freely, behavior that’s central to the success of Abenomics.

In the Kyodo survey 71 percent of businesses polled believe they will see growth in 2014, but if that growth isn’t translated into higher salaries, the game is off. Moreover, the good performance of the economy in 2013 was misleading. As web magazine Diamond Online points out, it was a minority of well-to-do Japanese who benefited from the stock market boom in the past year. Also, because people have anticipated the consumption tax hike next year, they rushed to buy houses. These two factors boost numbers, at least temporarily, but they don’t solve the underlying problem of deflation and lack of consumer sentiment in the population at large.

Much was made of the big profits enjoyed by large companies this year, but they represent a fairly small portion of the Japanese business community, only 0.3 percent of all registered companies. They made money through exports, meaning they benefited from the higher dollar. That’s all. Diamond says that 70 percent of the Japanese workforce is employed by small or medium-sized companies, who depend mainly on domestic consumption.

Diamond surveyed 200 workers about their winter bonuses. Seventy-eight said they received no bonus at all, while 98 said their bonus was less than ¥500,000. Only 38 replied that their bonus was larger than last year’s, while 40 said it was less. The remainder said there was no change. This contrasts greatly with the widely reported news that the average winter bonus of an employee of a large company was ¥806,000.

More significantly, when Diamond asked the people who did receive a bonus what they used it for, 61 percent said it went into their savings, while 24 percent said it would go for “necessary expenses” and 19 percent used it to help pay off loans. In other words, only 6 percent, at most, bought something with it.

The Mizuho Research Institute found that the average household, which earns ¥4 million-¥5 million a year, will spend ¥78,869 more in taxes in 2014 thanks to the consumption tax increase. The Cocomane website, which helps consumers save money with tips on reducing expenditures, did its own survey of 1,127 people, 80 percent of whom said they “economize” on a regular basis. Why are they always looking to save money? The number one reason is to “prepare” for future expenditures. The second most common reason was “loss of income,” and the third reason “not enough money saved.” As to the question “How do you save money?” the most frequent answer was the simplest: Just try not to spend it, followed by “not eating out” and “cutting back on utilities.”

But the most interesting responses were in relation to the consumption tax hike. Fifty-four percent of respondents said they have not made nor do they intend to make any “big purchases” before the increase goes into effect, and 62 percent of the people who are making big purchases say it has nothing to do with the increase. Essentially, most consumers either aren’t changing their already careful consumption habits in face of the tax increase, or they will try to spend less. Almost no one expects to spend more.

Deflation watch: Kabocha

Monday, July 1st, 2013

Japanese pumpkin, raw and prepared

Japanese pumpkin, raw and prepared

The main story at the heart of Abenomics as far as the Japanese media is concerned is that Japanese exporters are making more money since the Liberal Democratic Party regained power. Secondarily, energy costs are rising thanks to a related increase in the dollar against the yen, not to mention imported wheat prices, which affect all sorts of processed foods in Japan. Many food-related manufacturers started raising prices on July 1 as a result.

So far, the price of imported fresh produce hasn’t been affected that much. Last year we reported on the very low price of bananas due to specific circumstances, and since then the price has gone up quite a bit owing to a typhoon that destroyed much of the Philippines’ crop. However, the prices of other fruits and vegetables that tend to be imported in large amounts haven’t changed significantly. If anything, some local produce may have come down in price and thus become more competitive, notably kabocha, the Japanese style of pumpkin, often called buttercup squash in English.

Kabocha is grown in Japan but is mainly available in the fall and early winter. During the rest of the year it is imported mainly Mexico and New Zealand, but also from New Caledonia and South Korea. Demand is so strong that Japanese companies have been running farms in these countries for almost 20 years to grow kabocha exclusively. New Zealand first started exporting the vegetable to Japan in 1988. Actually, China, India and Russia produce much more pumpkin and other types of squash but the kind they grow is not necessarily popular here. (Also, there seems to be some issue with China’s use of agrichemicals.) Japanese prefer a strain referred to as kuri-kabocha, which is drier.

Normally, the price of Japanese kabocha is two to three times that of the imported kind. In April at the Tokyo Central Produce Market, domestic kabocha was going for ¥356 per kg, while foreign kabocha was only about ¥97. However, lately the price of Japanese kabocha has come down to almost even with foreign kabocha, which is a remarkable drop. Last week at our local supermarket kabocha from Mexico was only a little less expensive than kabocha grown in Ibaraki Prefecture. It’s not clear if this is due to higher import prices because of the rising dollar or just that the domestic product is suddenly cheaper. It’s probably both, since Japanese farmers have to contend with Mexican kabocha almost year-round now that there are two growing seasons for kabocha in Mexico.

Also, kabocha, once a standard item in the Japanese diet, lost popularity some years ago and seems to be making a big comeback now among health-conscious families — kabocha contains more calcium than milk does — so farmers are producing as much as they can, thus bringing the price down.

Convenience store companies boost employee income, engage in one-upmanship

Thursday, March 14th, 2013

No raises here: Recently shuttered convenience store

No raises here: Recently shuttered convenience store

If Prime Minister Shinzo Abe’s plan to boost inflation and the economy along with it is to succeed, companies will have to raise employee salaries and wages, otherwise there will be no increase in consumer spending. Earlier this week, a number of automotive companies and electronics makers said they would go along with this plan and announced bigger bonuses, seemingly as a gesture of support for Abe’s scheme. However, one company got the jump on all of them, the #2 convenience store chain Lawson. The company’s president, Takeshi Ninami, who happens to also serve on the government’s Advisory Panel on Industrial Competitiveness, said earlier this month that employees “in their 20s to their 40s” would be eligible for a pay hike of 3 percent, or one percentage point higher than Abe’s inflation target.

Ninami told Nihon Keizai Shimbun that Lawson employees in this age group account for 70 percent of the company’s workforce. It should be noted that the vast majority of Lawson employees who interface with the public, meaning clerks at Lawson’s stores, are not eligible, since they are either hired by the franchise owners or, if the store is company-owned, employed as part-time help (arubaito). Ninami admitted this to Nikkei, but said that Lawson would try to “secure higher incomes” for these workers by implementing “activities to increase profits for our franchisees, starting in March.”

In response, Seven and i Holdings, which runs the No. 1 convenience store chain 7-11, and Family Mart, which operates the No. 3 chain, will also boost pay to stay competitive, since there’s a danger some of their regular employees might bolt to Lawson if they don’t. Ostensibly, however, or at least according to Tokyo Shimbun, the convenience store industry believes it needs to support the Abe plan because retail “is very close to the consumer” and thus must provide an example that could help open tightly closed wallets. Because convenience stores have continued to do well even during the recession, and retail workers tend to be paid less per hour than workers in other industries, CS companies need to take the lead in the hope that other distribution-related firms will also increase wages and, as a result, boost consumption in general.

Domestic consumption accounts for 60 percent of Japan’s GDP. That’s why Abe stood in front of the Japan Business Federation (Keidanren) and two other business associations in February and bowed deeply, asking them to increase salaries. They reacted “cautiously,” saying that the business situation is “still difficult,” but Abe probably expected that. He made sure cameras were there to record it so that the public would know that he was trying and other business leaders might be shamed into going along. Then Ninami, who is basically part of the Abe team, announced Lawson’s wage plan. In addition, Family Mart announced its wage hike right after economic reconstruction minister, Akira Amari, told reporters that he hoped the company would do exactly that.

Specifically, Lawson will increase bonuses for 3,300 of its 3,500 regular employees for an overall 3 percent boost in employee income. The 54 group companies of Seven & i Holdings comprise 53,500 regular employees, who will receive a “base up” — meaning all affected receive a uniform raise — in addition to regularly scheduled individual salary increases (teikishoku) based on position, age and number of years at the company. Family Mart will give 2,700 of its 3,100 regular employees a 1.5 percent raise in teikishoku and a 0.7 percent bonus increase.

As Tokyo Shimbun points out these measures are mostly cosmetic. Since more and more workers are non-regular employees of the people they work for, there is no chance for a boost in inflation unless they get wage increases as well, and except for Ninami’s vague promise to “increase profits for franchises,” no one has said anything about non-regular and part-time workers, including major media. To give some idea of the scale involved, there are more than 13,000 7-11 franchises and 400 company-owned stores; the respective breakdown for Lawson is about 9,300 to 1,000; and for Family Mart its 7,500 to 450. Franchise employees are paid by the franchise owner, not the company whose name is on the store.

Deflation watch: Retort curry

Thursday, January 24th, 2013

Just add rice.

The newly elected Liberal Democratic Party government and the Bank of Japan have set an inflation target of 2 percent as a means of reviving the economy. It’s a plan that has been met with as much skepticism as approval, but what sort of impact will it have on the average person? According to an analysis in the Asahi Shimbun, inflation has only exceeded 2 percent several times in the last 25 years. In 1989, when the consumption tax went into effect, and 1997, when the tax was raised, consumer prices spiked for obvious reasons. In the early 90s, after the bubble burst, it went up due to an increase in the global price of oil, but during that period wages also went up by 4.8 percent, so the increase wasn’t that noticeable. In the summer of 2008, just before the subprime crisis, consumer prices went up by 2.4 percent, also due to a rise in energy costs, but wages actually decreased by 0.3 percent. It’s this dynamic between consumer prices and wages that determines how the public “feels” inflation. According to Japan’s Tax Bureau, the average income of salaried workers in 1997 was ¥4.67 million, and in 2011 it was ¥4.09 million. In terms of total money, Japanese salaried employees earn ¥25 trillion less than they did at the peak of the bubble era. Some of this loss in buying power has been offset by the attendant decrease in retail prices. Anyone who lived in Japan during the bubble will tell you that consumer prices were very high, especially when compared to those in other countries, so the subsequent drop doesn’t seem unnatural.

All of which is to say that we plan to post occasional observations about price changes over time as a means of putting Abenomics — whose core strategy is to boost inflation — in perspective. First up: retort curry, meaning prepared curry topping in a pouch that is heated in a pan of boiling water. Except for noodles, it’s the most common instant meal in Japan and there are dozens of retort curry product lines. The volume of a single serving package is usually 200-210 grams, with higher end products topping out at ¥300 retail per piece. However, above the ¥100 price line, there really isn’t that much difference from one brand to another except maybe in terms of meat volume.

Below ¥100 is where the competition lies, and in that price range the most representative brand is House’s Kariya. Though the recommended retail price is ¥120, after the turn of the millennium Kariya usually retailed for about ¥98 in line with the “one coin” marketing strategy that said people tended to resist a product once its price floated above ¥100. Following deflationary patterns over the course of the decade, Kariya’s price actually dropped, first to ¥88 and then to ¥78, in discount and drug stores that specialized in bulk sales. The spread of such stores put pressure on regular supermarket chains to also reduce the price of Kariya, since it was so popular. Last weekend, we found it on sale at our local discount drug store for ¥68. That’s even cheaper than generic brands, which usually go for ¥296 for a set of four pouches. More significantly, the price of other brands of retort curry has also come down, and while none are as low as ¥68, more have drifted below the ¥100 line. This means a curry meal can actually cost less than two convenience store onigiri (¥200), the standard model for a cheap lunch, since a microwave package of prepared white rice is ¥80-¥90. Of course, non-instant curry, made from packaged roux, costs less per serving, but retort curry will likely become even more in demand with the projected increase in single-person households, and so we predict it will resist any inflationary pressure.

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