business

Japan's cash-rich companies ready to spend more on M&A, not wages: poll

6 Comments
By Tetsushi Kajimoto

Japanese companies are warming to mobilizing their mountains of accumulated cash for mergers and acquisitions but remain stubbornly resistant to wage increases, a Reuters poll showed on Monday.

Prime Minister Shinzo Abe's government has struggled for years to coax companies to lift wages, seen as the missing link for a sustainable growth cycle led by consumer spending. But deep-seated doubts stirred in part by Japan's shrinking population have left them loath to take on higher fixed costs.

Instead they have hoarded their cash or, increasingly, begun looking to overseas acquisitions as a way to escape the limitations in their home markets.

"We might think about expanding our foothold overseas or corporate buyouts," a manager at a wholesaler wrote in the survey.

Japan's economy is quietly plodding ahead, on track for its longest post-war economic expansion after an initial burst from the launch of "Abenomics" nearly five years ago. But wage growth has lagged and inflation remains subdued.

Asked how they intended to use their internal reserves in the future, 23 percent of companies in the survey said for mergers and acquisitions, versus only 4 percent that said wage increases.

Only 5 percent said they were already deploying their cash for M&A, and just 3 percent said they were already tapping their reserves for wage hikes.

One-third of companies plan to spend reserves on domestic capital investment while 13 percent aim to invest overseas. Another 20 percent said they would hold onto their cash.

"We want to avoid having too little in reserve, so we won't spend any of it no matter what we are told to do," wrote an official at a precision machinery manufacturer.

The survey, conducted Oct 26 to Nov 7 for Reuters by Nikkei Research, polled 547 big and mid-sized firms, which replied on condition of anonymity. About 245 companies answered the questions on internal reserves.

Nearly two-thirds of companies said they wanted a continuation of the three-pronged "Abenomics" recipe of hyper-loose monetary easing, fiscal spending and structural reforms, which breathed new life into the economy immediately after its launch nearly five years ago.

But there was also support for tweaks to the three individual components, as respondents urged a step back from negative interest rates, a commitment to a balanced budget, and the implementation of long-stalled structural reforms.

"Abenomics should focus on a growth strategy to revive the economy, preferably with support from fiscal policy," said a manager at an electronic equipment manufacturer in the survey's written comments.

"Easing monetary policy to the extent of adopting a negative interest rate policy produces side effects, and it is time to consider tapering."

Only 21 percent called for pursuing an alternative to Abenomics, while 17 percent thought it was not being pursued aggressively enough.

Asked what part of Abenomics they thought needed adjustment, a majority of respondents, at 58 percent, pointed to the "third arrow" of growth strategy and structural reforms, which have come under criticism for failing to tackle difficult issues such as Japan's rigid labor markets.

Another 40 percent cited monetary easing, with many calling for dialing back the Bank of Japan's massive monetary stimulus, while 28 percent sought tweaks to fiscal policy. Multiple choices were allowed on this question.

Companies were upbeat about the prospects for sorting out Japan's fiscal woes, with three-quarters of respondents saying it was possible to rein in public debt, while 69 percent called for setting a target for a balanced budget. Abe postponed the government's target for the fiscal year to March 2021 and has not yet set a new deadline.

© (c) Copyright Thomson Reuters 2017.

©2017 GPlusMedia Inc.

6 Comments
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What a bunch of greedy bastards! Where do they think their wealth comes from? The hard work of their employees! But heaven forbid they reward them and raise their wages. A friend just returned from Australia and was commenting on how expensive things were, but then quickly added that the salaries were much higher which offset the high prices. If Japan does the same, then they will finally see their dream of inflation!

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Doesn't this contradict an earlier article "Japanese households' financial assets rising: survey"

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Prime Minister Shinzo Abe's government has struggled for years to coax companies to lift wages

It's not enough to ask nicely. Companies will not do anything unless it becomes law.

"We want to avoid having too little in reserve, so we won't spend any of it no matter what we are told to do"

Then the only way is to force them.

But the government does care about that, so it won't happen.

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In what other countries in the world are companies surveyed to ask whether they will spend their shareholders profits on raising wages?

Wages are an input cost that is paid in order to produce goods and services and hopefully leave profits. The purpose is to make profits for shareholders. The purpose of producing profit for shareholders is not so that the profit earned for shareholders can then be taken away in order to pay higher input costs.

Shareholders are taking a risk owning businesses. Sharedholders may lose their money, or lots of it (Kobe Steel? Toshiba? Tepco?). Although they run the risk of losing their money, there is this concept in Japan that should they get lucky and receive a profit, they should then give some more of it up to pay higher input costs.

Any business operator that aims to increase the input costs of the business has no business running one.

Wages in normal economies are set by what the market demands. Pay sufficient wages, or lose staff to the competitors.

The cart is put before the horse in Japan.

Prime Minister Shinzo Abe's government has struggled for years to coax companies to lift wages

It's the labour market that is supposed to do that. If it's not working out as hoped it implies your labour market is broken (and needs fixing). Stop trying to take shortcuts all the time.

"We want to avoid having too little in reserve, so we won't spend any of it no matter what we are told to do," wrote an official at a precision machinery manufacturer.

Wise. If you can't shrink your workforce easily as is the case in Japan, you need reserves as a buffer for during the lean times.

respondents urged a step back from negative interest rates, a commitment to a balanced budget, and the implementation of long-stalled structural reforms.

That is, they don't like "Kurodanomics", they don't want a "2nd arrow", but do want that elusive "3rd arrow", which should include labour market reforms.

a majority of respondents, at 58 percent, pointed to the "third arrow" of growth strategy and structural reforms, which have come under criticism for failing to tackle difficult issues such as Japan's rigid labor markets.

Exactly. But these are only difficult issues to the extent that the politicians are gutless. The survey results show that (most) everyone knows that reforms are required, and it won't be a cakewalk. But people will respect politicians that have the guts to do what is the right thing for the long term prospects of the country. The leader that stands up and does this will go down in history as Japanese leader of the century.

with three-quarters of respondents saying it was possible to rein in public debt, while 69 percent called for setting a target for a balanced budget. 

Agreed, although Abe is too gutless to do either.

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The labor unions need to take their gloves off and make some ultimatums, like shutting down the transport system, refusing to collect garbage and shutting off the heating and plumbing in factories and office buildings.

The government should start scaling back its subsidies and procurement contracts until the corporations agree to share the benefits wrought by the "accomodative policies" of Abenomics.

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Same thing happened with the US

"USA's cash-rich companies ready to spend more on M&A, not wages"

That's why trickle-down economics don't work

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