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Japan's lopsided economic revival enters sixth year

Expansion has been slow to trickle down to wages and consumption

Strong industrial production has been one factor supporting Japan's sustained economic growth. (Photo by Konosuke Urata)

TOKYO -- The latest official business readings show that Japan's economy is on track for its sixth year of sustained growth in 2018, though the boom cycle has yet to be fully reflected in household incomes.

An index meant to provide a snapshot of business conditions rose to 120.7 in December, up 2.8 points from November to the highest reading since comparable data started being kept in 1985. The gauge, released by Japan's Cabinet Office on Wednesday, climbed for a third straight month, with the agency maintaining its assessment of "improving" business conditions.

The data all but confirms that the Japanese economy has continued an expansion that began in December 2012. The last time the so-called coincident index reached such lofty territory was October 1990 -- during the asset bubble -- when it crested at 120.6.

At least seven of the nine indicators factored into the index contributed to the barometer's rise in December. The jump in producer shipments was particularly steep thanks to a swelling of capital expenditures on solid demand for semiconductor production equipment and construction and mining machinery.

"The coincident index is highly reflective of strong corporate activity, especially in the manufacturing sector," said Satoshi Osanai, senior economist at the Daiwa Institute of Research.

In other words, Japan's economic recovery is as robust as it was during the bubble era, at least through the eyes of corporations. Several companies are forecasting record earnings for the current fiscal year. Japan's growth is in line with the upswing seen in other major economies around the world.

But when it comes to Japanese households, the economic expansion is not quite as palpable. The Cabinet Office also publishes the lagging index, which includes for wages, consumption and other household-related indicators. This index is said to lag behind the coincident index by about six months.

The lagging index inched up 0.2 point in December to 119. Though the metric rose for a fifth straight month, it merely returned to where it was in October 2008, falling short of levels attained prior to the global financial crisis.  

Wages, meanwhile, have barely grown in relation to the inflation rate. In fact, real wages in 2017 shrank 0.2% from the year before, data released Wednesday by the Ministry of Health, Labor and Welfare shows.

Part-time workers saw wages increase 0.1% in response to a perceived labor shortage, but full-time workers sustained a 0.2% dip in pay. Full-time employees earn quadruple the monthly pay of part-timers, so a prolonged lag in growth of their wages will likely hinder consumption.  

Spring labor talks, which began in earnest last month, will determine whether or not paychecks will grow at a faster clip. Prime Minister Shinzo Abe has been calling for a 3% increase in wages, and many business managers have expressed optimism about pay hikes.

However, Japanese industries across the board are facing stiff international competition in commercializing new technology that employs artificial intelligence. Rising long-term interest rates in the U.S. are also roiling financial markets, which could curb the enthusiasm to raise wages.

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