What's going on?
Wages in Japan are growing at the fastest rate in the past 15 years, up .8% from last year. This is largely due to companies responding to government pressure to increase pay for their workers, which is part of Japanese President Abe Shinzo’s “Abenomics” economic stimulus programs to try to improve the Japanese economy. Japan’s economy has been largely stagnant for the past ten years and has had two decades of deflation. Last year wages were down 1.5% in Japan because of a rise in the consumption tax, which was enacted. This was a major setback to the Abenomics stimulus packages, leaving consumers feeling worse off than in past years, further signifying the importance of this year’s wage increase.
What does this mean?
Larger paychecks mean that Japanese workers will spend more money in stores, thereby increasing consumption rates and further stimulating the economy. When people spend money in stores it has a ripple effect on economic activity. Economic growth occurs through either business spending, or consumer spending. When workers are paid more they are able to spend more in stores, which in turn helps businesses, which have the ability to make more money and create jobs by hiring more employees. Wage increases are also critical to economic stimuli because people are more likely to spend money based on a wage increase instead of on a one-time bonus. In Japan, the wage increase has been largest in the education, healthcare, and export sector, which has benefitted from the weak Japanese currency, the Yen.
Why should I care?
Wage increases and economic stimulus in Japan are important as evidence of progress for the Abenomics economic stimulus plan. The increase in wages and Japanese consumption could also affect the strength of the Yen, the Japanese currency, which has been low for the past few years, keeping Japanese exports at fairly low prices, such as cars and electronics. If Japanese economic growth increases, the Yen will get stronger, which in turn will cause Japanese exported goods to increase in price abroad.
Potential investment opportunities stemming from the wage increase and the positive impact of Japan’s economic stimulus would be to invest in the Japanese export sector, or stocks in the manufacturing, electronic, or transportation sectors. Specifically, the Japanese car and electronic industries would be potentially attractive industries to consider investing in due to a weak Yen. Another opportunity would be to buy the Japanese Yen on the currency trading markets.
Originally posted as part of the Finimize daily email.
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