A Yen for Higher Wages

April’s “A Yen for Inflation,” commented on the goal of the Bank of Japan Governor, Haruhiko Kuroda’s 2% pa inflation target by 2015, going on to suggest that the Yen will need to weaken substantially for CPI to get anywhere near the 2% objective, possibly as weak as 170, a 70% fall from its then spot value of 99.

Fast forward to today and we can see a marked improvement in inflation, from a policy-makers’ standpoint that is, as CPI has risen from -0.9% annualised, at April 2013, to 1.1% now, despite only a modest weakening of the Yen from 99 to 102.85.


One look at the Nikkei, the best barometer of the collective social mood of Japanese society, shows a continued close correlation between the stock-market, the Yen and CPI and it’s been one of rising optimism.

However, there is one missing piece in this fairy-tale end to deflation, and that is “wages.”


As can be seen within the second chart, Japanese workers household income has been falling for 17 months now, whilst the cost of living is rising. Japan’s sales tax is to be raised to 8 percent next April from the current 5%, which will cut further into consumers’ spending power.

During a recent Bloomberg interview Prime Minister Shinzo Abe said,” what we want is for wages to rise more than prices,” but he has no control over this wish, as that’s down to corporate Japan.


If the correlation between wages and the Nikkei remain in place, not to mention a hesitant Yen, a lower Nikkei may well be on the way soon.



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