Wary manufacturers resist Abe's urge to splurge

For Prime Minister Shinzo Abe’s economic revival plan to work, pulling Japan out of decades of stagnation and deflation, companies need to be willing to use that cash for new investment

They are. They are just using it for foreign investments/acquisitions, since they know Japan is a shrinking and aging population. I mean just think about it logically for a second -- Daikin makes air conditioners. How many elderly people are going to go out and splurge on a new unit? They would rather do what Daikin is doing -- make do with what they have -- cheaper to fix than buy new. Same reason auto sales are down. All the wishing in the world by Abe and Kuroda is not going to magically turn around the Japanese population's legendary frugileness.

Over the same time, corporate earnings have increased by 11%, shares have rallied - Daikin’s are up more than four-fold from its 2008 low - and Japanese companies have socked away a record 87 trillion yen in cash.

Corporate earnings have increased 11%, but corporate sales have not increased that much. Much of the "earnings" Japanese companies have seen over the past two years comes from their investments in the stock market, not from production or sales of their goods.

Abe's plan to revitalize the economy consisted of mainly two parts, devaluing the currency to increase inflation, and deregulation of business to allow companies to operate more freely. Abe followed through with the first part, and companies have taken advantage of the program by borrowing vast amounts of money at low interest from the BOJ (via the commercial banks), and they have used the money they have borrowed to invest in stocks.

But these companies' investments in stocks are not likely to earn much more of a return unless Abe follows up on his promise to deregulate the economy. And unless there is some kind of deregulation, or other plan to increase growth, companies don't dare spend any of their stock market gains. That being so, we may end up worse off than before, with no growth in the population or economy, and companies holding large amounts of debts they incurred to buy stocks, and the potential for these stocks to slide down in value if the companies cannot perform. Added to this is the huge amount of public sector debt racked up over the past couple of years to the already existing debt, which will be all the harder to repay should, at best, things remain the same, or, at worst, should there be a stock market "readjustment" which instantly wipes away that 87 trillion yen companies are sitting on.

Abe needs to get off his backside and fulfill his promises, before it is too late.

Abe is not in touch with the real world.

Over the same time, corporate earnings have increased by 11%, shares have rallied - Daikin’s are up more than four-fold from its 2008 low - and Japanese companies have socked away a record 87 trillion yen in cash. So what are these companies doing with all this money? I understand being cautious, and not spending like a drunken sailor, but it seems only fair to give back some of these hard earned profits to those who earned them for you in the first place. The workers. The same thing is happening in the US, and Canada. Record profits, but the people responsible to them are not benefiting. It is just not fair!

All of the evidence is pointing to the fact that Abe is incompetent and really has no business running a Popsicle stand much less a government. His policies has shown to be ineffectual and actually have had a negative impact on the economy, employment, and future of Japan.

But the people who get the government subsidies (media, unis, farmers, elderly) just love Abe and that is what keeps him going. To the ones receiving the hand outs Abe can do no wrong. Everyone else in Japan is scr*wed.

In short, people and companies need to do what the Japanese government does-- spend money it doesn't have. Companies don't really want to do this because their profits are down thanks to Abe's reforms and it's not in their best interest to lower them anymore with reckless spending. At some point the immoveable force of reality will prove to be too large a stone for Abenomics to move.

more temporary workers on seasonal contracts

And people wonder why the economy isn't taking off like a rocket? When the corporate approach to fat-trimming is to move the balance of the workforce more towards people with low wages and a very uncertain future and few if any benefits, people wonder why fewer people are rushing out to spend spend spend?

I'm not a supporter of the "golden days" when lifetime employment was assumed and incompetent workers would get put into a window office to watch the clouds go by as a means of pressuring them to quit rather than firing them, but a certain degree of security is necessary if you want the public to spend money. The problem with the temporary worker system is that it so rarely offers a gateway into a better situation. When I was a temporary worker in the US, if a company liked how I worked they could hire me on as a full staff member, which meant I had incentive to do my job to the best of my ability. With temporary workers in Japan, it seems skilled people are just trapped in a dead-end because they're seen as a long-term cost-cutting measure, not a short-term means of cultivating workers with expertise.

For Prime Minister Shinzo Abe’s economic revival plan to work, pulling Japan out of decades of stagnation and deflation, companies need to be willing to use that cash for new investment in a way they have so far baulked at in the more than two years since he took office, economists say.

They need to use the cash to increase salaries so people have more money to spend.

Record profits, but the people responsible to them are not benefiting. It is just not fair!

What "record profits"? Has your company earned record profits over the past couple of years? Mine certainly hasn't. With GDP growth in all developed countries at less than 2%, how can any company be earning record profits? Companies are not selling any more now than they did prior to 2008, and if sales have not increased, where to record profits come from?

What we are seeing in company balance sheets is profit from stock investments, and not sales. These stock investments have occurred due to the governments QE and stimulus programs, which have flooded the economy with capital. This capital has been loaned to companies, who have used it to buy stocks. The current high stock prices, and their resulting market capitalization are the result of this easy money causing inflation in the stock markets. Originally, QE was supposed to cause inflation at the consumer level, but as the money was loaned out from the central bank to the commercial banks, and then to business, businesses have borrowed much of this money. Thus the stock market reaches ever higher numbers, while inflation at the consumer level remains largely unchanged.

The stock market is greatly inflated by cheap money, and companies know this. They do not dare spend any of this money as it may disappear overnight. They are waiting for Abe to put up or shut up with his promises to deregulate the economy. If Abe doesn't do as he promised, there will not be enough potential growth in the economy for companies to invest here, and, as business and sales do not improve, the value of their stocks will erode away over time, if they don't collapse over a much shorter period. In the end, this 87 trillion yen companies are holding has real substantial value.

it seems only fair to give back some of these hard earned profits to those who earned them for you in the first place. The workers.

That's not how the world works though.

It's only if it's in the best interests of the company that workers get the benefits. E.g., the workers will leave and work elsewhere if the company does not. But that isn't the case.

Japan has problems in this respect, first because people think that changing jobs is almost un-Japanese. They are relying on a hope for companies to act like they are socialist operations, when the fact is a company exists for other reasons.

Second, because the economy is not so great. As sangetsu03 says, government regulations get in the way of those willing to take a risk and start a new business, and thus less demand for workers. And thus wage growth pressure isn't there.

The free market approach is by no means perfect, but it's better than the alternatives, and Japan's economy is proof of it. But Japan isn't doing it right. And we now have the ridiculous situation of Abe trying to command companies to raise wages, when it is not a centrally planned economy. Abe needs to take a look at Cuba and take a look at Estonia, and figure out which one is doing it right, rather than muddle it all together.

Stability and predictability are important factors before companies can pour in investment. Political stability isn't one of japan strength. No one knows what's the direction of yen and investment environment after Abe.? Bad relation with neighbours, unable to find labour to work in factories and uncertainty in domestic outlook are just some of reasons why investment has been poor.

For Prime Minister Shinzo Abe’s economic revival plan to work, pulling Japan out of decades of stagnation and deflation, companies need to be willing to use that cash for new investment

They are. They are just using it for foreign investments/acquisitions

Um....NO. Japanese yen is the currency used in the country known as Japan, it is not used in any other countries. Any foreign investments made by Japanese companies are made using the money made in their foreign operations, or they take their yen to the place called the "foreign exchange market" and exchange their yen for the desired foreign currency with somebody who wants yen. That somebody else now has that yen, but that yen has gone nowhere other than into an account with a different name on it.

It's a worldwide problem, grappling with globalization. Companies have found you can pay workers less and make them work more because they need the job and are too afraid to quit, all the while companies and the management make more money and their bonuses go up.

In the UK, the US, France, they all talk about the need to raise wages because its the middle class that makes the world go round, but its proved to be difficult to force a company to raise wages.

Abe can preach the need to raise wages till his face turns red, but as long as profits rise by keeping the working man down, theyll keep doing it.

That's why I say, Unionize!

yen has gone nowhere other than into an account with a different name on it.

except spent with somebody who wants yen, eventually going back to Japan.

What's worse is that Japanese companies have lost their technological edge to American and Korean companies. The devaluing of the yen hasn't encouraged any more innovation, in fact it's making Japanese companies rest on their laurels. For example, for the younger generation, the word "Sony" doesn't have anywhere the same impact it did two decades ago. For them, it's Samsung or Apple. Toshiba, Hitachi, Sharp? Nope. What are they? With the complete collapse of the point-and-shooter sector of the camera industry, the only significant sales are from DSLRs. And even then, with the new Galaxy S6/S6 edge featuring DSLR-like capabilities and the upcoming iPhone 6s most likely having similar specifications, even DSLRs may be out the window soon.

sangetsu, that's only partly true. the record profits are also a result of the yen's depreciation. combined with the fat-trimming that many companies did during the recent downturn then you can see how japan has recorded record profits.

Um....NO. Japanese yen is the currency used in the country known as Japan, it is not used in any other countries. Any foreign investments made by Japanese companies are made using the money made in their foreign operations, or they take their yen to the place called the "foreign exchange market" and exchange their yen for the desired foreign currency with somebody who wants yen. That somebody else now has that yen, but that yen has gone nowhere other than into an account with a different name on it

Guy -- I guess you missed the point of the article. The point of the article is about profits/cash -- not yen denominated currency, and what Japanese companies are doing with that cash.

Over the same time, corporate earnings have increased by 11%, shares have rallied - Daikin’s are up more than four-fold from its 2008 low - and Japanese companies have socked away a record 87 trillion yen in cash.

For Prime Minister Shinzo Abe’s economic revival plan to work, pulling Japan out of decades of stagnation and deflation, companies need to be willing to use that cash for new investment

Most Japanese companies still see better growth outside Japan and are investing accordingly.

But thanks for the rudimentary explanation of foreign exchange principles. It was interesting, although totally irrelevant to the topic of the article.

At first glance I thought the headline read "War manufacturers resist Abe's urge to splurge".

"Japan's recovery remains in the slow lane".

Well the issues that Japan is facing with a declining population( which I think is not a bad thing),debt, many part time workers, the taxes in this country is a nightmare. The many stellar electronic companies are just keeping pace with the changes in the Industry. These last couple of Generations ( post stock market crash ) seem to lack a maturity and a vision for the future. Thus in saying all this there needs to be changes that need to take place for Japan to keep up with the changing world,especially as a society!

Are there anyone here who has any alternative plan to revive the Japanese economy?

"It's only if it's in the best interests of the company that workers get the benefits."

It IS in their best interests. When workers at home have job security and decent pay, they spend....on things like air conditioners.

This is the gospel according to Henry Ford, and used to be common sense until "free market" ideas - which stress short term greed and nothing else -- came into vogue from the 80s.

Today's corporates have forgotten this, which is the prime reason growth and wages have slowed in the developed world, and the economy adopted the bubble-then-bust dynamic.

The point of the article is about profits/cash -- not yen denominated currency, and what Japanese companies are doing with that cash

The point of the article is about the Japanese economy. What Japanese owned companies do in foreign countries has zero effect on the Japanese economy, and if they see better growth and investment opportunities in those countries then they can go ahead and do business there. But foreign earnings have nothing to do without amount of yen being held on corporate balance sheets, and the yen they have does not "leave Japan" to finance those foreign activities. There is no connection.

"Are there anyone here who has any alternative plan to revive the Japanese economy?"

Sure.

End corporate welfare. Make Japan Inc stand on its own.

End the Zaibutsu revolving door from retirement in industry to getting a cushy job as bureaucrat.

Make the banks stand on their own and end bailouts.

Stop exporting good jobs to Indonesia, India, Philippines, and Africa to make Japan Inc more profits.

Stop thinking raising taxes will spur spending. Wage increases spur spending and encouraging savings helps people afford bigger purchases.

There you go, but just a beginning mind you.

It IS in their best interests. When workers at home have job security and decent pay, they spend....on things like air conditioners.

How can these workers have job security and decent pay in an economy which is losing hundreds of thousands of people per year? The companies they work for have to compensate for the fact that the population will fall by the middle of the century, along with their sales. How are you going to give your workers secure jobs and decent pay when your company is going to lose one-third of it's revenue?

This is the gospel according to Henry Ford, and used to be common sense until "free market" ideas - which stress short term greed and nothing else -- came into vogue from the 80s.

The concept of free markets came into vogue with the original form of liberalism, the type of liberalism which was founded on individual liberty, not collective liberty, much like individual liberty that is the basic foundation of the American constitution. Free market were first tried in France in the 18th century, and later spread throughout other parts of Europe. Free markets did not go smoothly, no system is perfect, but it helped far more than it hurt. The idea of free markets at the time was also held dear by those who valued free thinking.

Henry Ford is a poor choice to use as an example, few people were as cut-throat as Ford was, few people better represented the caricature of the ultimate capitalist. Henry Ford did not raise wages out of love for his workers, he did it to increase profits. And in those days when Public Relations was a newly born idea, when the US government consumed less than 13% of GDP, and a shortage of labor was driving up wages across North America, Henry Ford's actions were inevitable. Pay a visit to one of Henry Ford's homes, he had them in all time zones, and on all coasts, and tell me that Henry Ford was not a capitalist, or that he couldn't have afforded to pay his workers even better than he did.

Today's corporates have forgotten this, which is the prime reason growth and wages have slowed in the developed world, and the economy adopted the bubble-then-bust dynamic.

Today's corporations, who do billions, or even trillions of dollars in business every year, have forgotten nothing. They know for more than Henry Ford ever knew. Today's corporations now have to operate in economies were the public sector consumes more than one-third of GDP, and in global markets with competitors on every continent. They also have to deal with more and more red tape, and the associated cost. Taxation is now their greatest expense, coming in ahead of payroll, or any other form of overhead. You think it is high wages that is driving outsourcing? Nope, it is mainly taxes. Why did JP Morgan move from New York to Ohio? Why did Toyota move from LA to Texas? Labor costs had nothing at all to do with it.

The free market approach is by no means perfect, but it's better than the alternatives, and Japan's economy is proof of it. But Japan isn't doing it right. And we now have the ridiculous situation of Abe trying to command companies to raise wages, when it is not a centrally planned economy.

Wise words fxgai.

PM Abe's approach is all wrong. The government can't be the driver of the economy if growth is going to improve. The government can be a facilitator (reasonable tax regime, sensible regulation, free trade, etc) certainly. However, Abe seems to have the attitude that businesses have an obligation to make his policies work. That's just not the case.

This is the gospel according to Henry Ford, and used to be common sense until "free market" ideas - which stress short term greed and nothing else -- came into vogue from the 80s.

Free market ideas have a long, long history, JeffLee, and they're long been "in vogue". Yes, there are those who act out of "short term" greed, but, that's not the case with ALL business people.

If you're using an iPhone, that's the product of business that employs thousands of people, and which has long term goals. Henry Ford's company continues today, albeit in a weakened state.

With more and more people in the developed world turning to self-employment, or freelancing, free market approaches are sorely needed. Deficit spending, and taxation have yet to achieve robust growth, and certainly government strong-arming isn't the answer.

If the government wants manufacturers to start investing more in their human resources, and assets, it can begin by making the Japanese market more accessible, and cheaper to enter. Intensify competition, and there will be a better chance for higher salaries.

It IS in their best interests. When workers at home have job security and decent pay, they spend....

Cart before the horse much? Job security and decent pay doesn't come about by miracle. It comes about from a vibrant economy, where there is strong demand for labour. Not the Prime Minister requesting companies to raise wages because he's too lame to implement the competitiveness-boosting reforms he promised when he was running for election.

The economy will look much better when companies actually have to compete harder for labour, because of market forces. Fortunately there are some signs that the labour market is tightening up, but this may not be because the economy is vibrant, but because the working age population is shrinking. We'll see soon if this is good enough to see wages rise.

Today's corporations now have to operate in economies were the public sector consumes more than one-third of GDP,

Government spending does not "consume" GDP. It is one of the three components in the calculation of GDP, along with private sector spending and exports.

But feel free to go on and on about using "taxpayer's money" or whatever else you think is being "consumed", and all the other nonsense that hasn't applied since the end of the gold standard decades ago.

But foreign earnings have nothing to do without amount of yen being held on corporate balance sheets, and the yen they have does not "leave Japan" to finance those foreign activities. There is no connection.

Guy -- LOL. Do you understand anything about corporate profits in multi-nationals? Or, have you read anything about Japanese corporate profits under Abenomics? Many Japanese companies -- mainly export-oriented ones-- have had record profits, and are swelling with cash, mainly due to the lower yen, because when they convert the foreign currency to yen, for accounting purposes, they are getting a larger profit. Regardless of where the cash is sitting, for accounting purposes, it must be shown in the home-country's currency. That is why many U.S. company's are having lower profuts right now -- because of the strength of the dollar. So there is every "connection". You really need to take an International Accounting course.

The bigest problem is that Japanese companies should have gotten out of consumer goods two decades ago. Anyone could see that these would move to China, then SE Asia, etc. The strong companies are ones that make inovative materials and components (electronic circuits and the like). They can fall back on these as they give up consumer products. Sony is all about consumer products, and does not have a M&C technology to fall back on. For those of you who see Japanese technology as declining, don't forget that those Samsung and other non-Japanese maker's products are packed with Japanese M&C. Samsung's largest overseas research facility is a massive 6 floor one in Yokohama. Japanese technology is not in decline, it is just hidden away inside the case.

Jerseyboy - The article is about the amount of yen cash holdings on Japanese corporate balance sheets and their unwillingness to use this money for investment. Conversion of foreign earnings and cash holdings, either for accounting purposes or actual conversion to yen in the foreign exchange market has zero effect on either of those two issues. The quantity of yen being held in total and the willingness to invest domestically are unchanged and unaffected. But feel free to try to explain otherwise.

Guy, feel free to explain why "the quantity of yen" is important to you.

For most other people, it's what it's worth that matters.

Government spending does not "consume" GDP. It is one of the three components in the calculation of GDP, along with private sector spending and exports.

When the return for the money invested generates a negative return, such as is the case with most tax revenue, then this money is consumed. For every 100 yen you invest in the national pension plan, you will be lucky to get 30 yen in return. For every 100 yen you invest in a private retirement fund, you can expect to get more than 100 yen in return.

When the private sector invests money, it expects a positive return, and the proceeds from positive returns are reinvested in order to generate further returns. In order for these returns to occur, the private sector has to create goods and services which people want, for the prices people are willing to pay. The private sector must invest and work as efficiently as possible to provide good products at a good price, as they have many competitors who are trying to do the same thing.

The public sector does not concern itself with earning a positive return on the money it receives. The public sector is a monopoly, with no competition, so there is no need for it to provide the best services for the best price. The only control the market has over the public sector is the ability to move to other countries, and this is what many companies are doing.

The public sector creates no revenue, absolutely none at all. Printing currency is not creating revenue, adding to the money supply drives down the value of revenue. Government spending has a much smaller positive effect on the economy because the public sector tends to pay more for goods and services than the private sector does, and, the public spends the private sector's money to fund this spending.

When one third of the private sector's money goes into the public sector, the private sector has one-third less money to invest in producing goods or services, or providing jobs to goods or service providers. The amount of value the taxpayers receive from the one-third of their money which goes into the public sector is much less than the one-third they have had to give up.

The private sector creates revenue, the public sector consumes revenue. The larger the public sector becomes, the smaller the private sector becomes, and there is less revenue created. Deficit spending ensues as the public sector spends more than it consumes in revenue. To make up for the deficit, taxes are increased, which means the public sector consumes yet more revenue, leaving even less in the private sector, which in turn means the private sector has even less to spend on goods, services, and labor, and the problem compounds itself.

So many long drawn out verbose opinions about the economy. I love economics because its such a subjective BS topic where even air heads can look intelligent. A couple of personal experiences; My Uni graduate son has multiple job offers; my friend had an organ transplant at no charge provided compliments of J health insurance; I just completed an M&A worth USD430; my stock portfolio is up 120 percent and my Mercedez sales chick is gonna get a hefty bonus. Oh the dieing J economy.......

So many long drawn out verbose opinions about the economy. I love economics because its such a subjective BS topic where even air heads can look intelligent. A couple of personal experiences; My Uni graduate son has multiple job offers; my friend had an organ transplant at no charge provided compliments of J health insurance; I just completed an M&A worth USD430; my stock portfolio is up 120 percent and my Mercedez sales chick is gonna get a hefty bonus. Oh the dieing J economy.......

"A couple of personal experiences" aren't "subjective BS"?

You had something of a good point till you contradicted yourself.

That you're doing well doesn't mean the economy isn't "dieing". Your Mercedes chick may be enjoying some good sales now, but, down the road, it she may well get a smaller bonus as taxes go up, cost rise, and demand dwindles.