Creation of special economic zones, “Tokku” in Japanese, has become one of the symbols of the growth strategy of Abenomics. Abe administration is scheduled to publish a new version of their growth strategy package by the end of June and the package will include the creation of 6 National Strategic Special Zones. Among the six special zones, the special zone of Tokyo is said to potentially have a large impact on the economy. For example, the government is said to take measures to make it easier for foreigners to acquire resident status, and simplify the procedures of starting a business in the special zone of Tokyo. When you see all the fanfare and measures supposedly planned for these special zones, you might think that they could be quite effective for Japanese economy. But how effective will they really be? The truth is that Japanese government have introduced many special zones in the last 10 years, but the impact of these special zones has been limited and many of special zones failed to produce hardly any results at all. Our following examination of past examples and currently proposed batch of special economic zones suggests they are likely to equally ineffective. Read more..
International trade activities in May were weak with both exports and imports shrinking from April. After seasonal adjustment, exports fell by 1.2% month on month (MoM), and imports by 1.3% from May. While the news of stagnating exports is nothing new, the decline in imports in May was quite surprising. Imports had already fallen by 9.9% MoM between March and April, and most economists including us were expecting a modest expansion in imports in May. The continued decline of imports in May suggests that the weakening in the economic activities in Japan may have continued into May. Japanese policy makers have been maintaining an optimistic view that the VAT hike in April will only have a transitory negative effect. The weak imports figure from May suggest otherwise. Read more..
Total wage in Japan rose by 0.9% year on year in April. While the rate of growth is one of the highest in recent months, it still pales against the CPI inflation rate of 3.4% year on year in the same month. Using a modified inflation measure, the statistical agency that releases the wage data put the real wage to have declined by 3.1% year on year in April. The base salary, without the overtime and bonuses, fell by 0.2% year on year, even on a nominal term. Thus, all the talk about base salary increases for employees in large companies must have been exception. With such severe decline in real wage, it is difficult to envisage how private consumption in Japan could maintain real expansion in the rest of 2014. Even outside wage income, Japanese households are not faring better either. Public pension has just been cut by 0.7% in April in order to reduce deficits in Japanese pension system. While policy makers tend to remain hopeful that consumption should recover toward summer, we find it difficult to conceive why that should be the case. We expect private consumption to remain largely depressed in the rest of 2014. Read more..
It seems consumers' behavior before and after the VAT hike is virtually the same in 2014 as in 1997. In April 2014, retail sales fell by 4.4% year on year (YoY), comparable to the decline of 3.8% YoY in April 1997. While Japanese mass-media and policy makers tends to downplay the negative effects of the VAT hike on consumption, the effects so far seem just as bad this year as in 1997. In our view, there is no wonder though. Japanese household will be suffering severe decline in real income this year. We expect wage growth in 2014 to be 1.2%, well below the CPI inflation of 2.7%. Situations are even worse for pensioners who now account for 25% of the whole population. From April 2014, public pensions were cut by 0.7%. Stagnating stock market will also not help Japanese pensioners. Policy makers tend to maintain that consumption would recover from summer. We think such assumption are overly optimistic. Read more..
International tourism is one of the few promising businesses that grew strongly in the recent years in Japan. Foreign visitors to Japan doubled in the last decade and reached 10 million people for the first time in 2013, led by an increase of Asian visitors. The Japanese government has set an ambitious goal to increase the foreign visitors to 20 million in 2020 and 30 million in 2030. It is not an unachievable goal, considering the number of visitors of other countries and expected further improvement of income levels in Asian countries. Read more..