Why wage growth and the private sector are the keys for Japan



As noted in Rising Sun, Setting Sun, a special report from the BlackRock Investment Institute, there are several key events and processes that can help Japan to escape economic stagnation.

Wage growth. This is a necessary part of restoring inflation. Wages are not keeping up with rising prices, which is taking a toll on consumer sentiment. We continue to monitor spring wage negotiations between large Japanese companies and unions.

Market Realist – The chart above shows the annual average real wage for a decade. For a large part of the last decade, real wages in Japan were dipping. In other words, the growth rate in wages was less than inflation for those years.

Shinzo Abe, since his re-election as prime minister of Japan in late 2012, has aimed at a three-pronged approach of monetary easing, fiscal stimulus, and structural reforms to bring the struggling Japanese economy back to normal.

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Private sector cooperation. Prime Minister Shinzo Abe’s efforts to evade deflation and revive the nation’s economy, (referred to as “Abenomics”), have thus far helped Japan find more stable ground. Monetary easing and fiscal consolidation have coaxed Japan’s economy toward stability; the private sector must take it from here.

Market Realist – You can get exposure to Japanese stocks by investing in ETFs such as the iShares MSCI Japan Index (EWJ) or WisdomTree Japan Hedged Equity Fund (DXJ). These ETFs invest in top Japanese stocks like Toyota (TM), Honda (HMC), and Sony (SNE).


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