TOKYO -- Abenomics, Japanese Prime Minister Shinzo Abe's signature economic policy package, had a watershed moment last week with the successful initial public offering on Nov.4 of shares of Japan Post Holdings and its two financial arms, Japan Post Bank and Japan Post Insurance. All three issues ended their first day of trade above their offering price, and rose again on the following day.
Scratch our backs
As publicly traded companies, the postal banking and insurance units plan to increase their investment in stocks and other risk assets. The emergence of the two new "whales" -- large, influential investors on the Tokyo stock market -- alongside the Bank of Japan, the Government Pension Investment Fund and the Pension Fund Association for Local Government Officials, puts the finishing touches on the Abe government's plan to prop up the stock market.
But at least one ruling party official is unimpressed. "I'm not in the mood for celebration," said a Liberal Democratic Party member. Japan's inflation-adjusted gross domestic product shrank 0.9% in the fiscal year ended March. That was followed by a 1.2% contraction in the April-June quarter. The cushion of public money notwithstanding, the market could still collapse if markets elsewhere falter. And it will be difficult for the LDP to campaign on Abenomics in the Upper House election next summer if all it has to show for the effort is a higher stock market.
Running short on options, Abe has been jawboning companies, trying to get them to spend more of their cash hoards in hopes that will increase capital investment and push up wages and employment.
"At the next meeting, please present specific plans to expand corporate investment and related issues," Abe urged economic ministers and business leaders at the second meeting between public- and private-sector leaders on Nov.5. At the first get-together in mid-October, Economic and Fiscal Policy Minister Akira Amari said, "It is a huge management mistake not to invest despite having record amounts of funds to do so."
Corporate profits in Japan have risen to all-time highs, thanks in part to the weaker yen, but capital spending has not kept pace. Japanese companies together held a record 354 trillion yen ($2.88 trillion) in retained earnings at the end of March, up 80 trillion yen from the end of 2012, when Abenomics got rolling. If the additional earnings had been invested as the government had hoped, "Abenomics would have been a huge success by now," complained one LDP official. The prime minister's goal of raising Japan's GDP to 600 trillion yen, one of three revised economic targets, now appears increasingly unrealistic.
We'll scratch yours
Abe's team believes the key to faster economic growth is to lower Japan's effective corporate tax rate to the 20% range. The government has been pushing for a quick reduction in business taxes, bringing forward the planned cuts from sometime in the next few years to before the end of fiscal 2017 ending March 2018, or as one cabinet official said," in the next fiscal year" ending March 2017. But others in government and the ruling party are less eager for an across-the-board rate cut. They worry that if companies are reluctant to invest despite record profits, handing them still more cash will do little good.
The challenge for Abe will be to create a system that encourages companies to invest in future growth and raise worker pay, while rewarding them with a tax cut at the same time. But some business leaders resent what they see as the government's strong-arming on wage hikes and its paternalism with respect to management decisions. It will be a bumpy road ahead for Abe, as he will also need to respond to demands from industry such as deregulation.
Meanwhile, the BOJ's monetary easing, another pillar of Abenomics, has yet to deliver the higher inflation promised. The BOJ has been gobbling up government debt from banks and other market players to provide liquidity, but the cash keeps flowing back into the BOJ's current account.
Unless Abe can persuade companies to spend more of their massive cash pile, the economic policies that bear his name may end in disappointment.