Japan's savings rate turns negative

Wages fall in challenge to Prime Minister Shinzo Abe

Japanese drew down savings for the first time while wages adjusted for inflation dropped the most in almost five years, highlighting challenges for Prime Minister Shinzo Abe as he tries to revive the world's third-largest economy.

The savings rate in the year through March was minus 1.3 per cent, the first negative reading in data back to 1955, the Cabinet Office said. Real earnings fell 4.3 per cent in November from a year earlier, a 17th straight decline and the steepest tumble since December 2009, the labour ministry said on Friday.

A higher sales tax combined with the central bank's record easing are driving up living costs, squeezing household budgets and damping consumption. Abe's task is to convince companies to agree to higher wages in next spring's labor talks to sustain a recovery.

"Households are suffering from a decline in real income," said Hiromichi Shirakawa, an economist at Credit Suisse Group AG who used to work at the Bank of Japan.

Abe is trying to generate a virtuous cycle in the economy, where higher incomes fuel consumer spending, which in turn prompts companies to boost investment and wages. Last week he secured a pledge from business leaders to do their best to boost pay next year.

The government will aim for wages to increase faster than inflation next year, Economy Minister Akira Amari said last week. BOJ Governor Haruhiko Kuroda said yesterday he'd watch the spring wage talks "with strong interest."

Labour shortage
The savings rate, which the Cabinet Office calculates by dividing savings by the sum of disposable income and pension payments, peaked at 23.1 per cent in financial year 1975.

As Japan's population ages, its growing ranks of elderly are tapping their savings, according to the Cabinet Office. Consumers also ran down savings to make purchases ahead of a sales tax-increase in April, the first since 1997.

The shrinking workforce is intensifying a labor shortage that Kuroda has said will prompt an increasing number of companies to boost pay to secure workers.

Today's data showed there were 1.12 jobs available for every person seeking a position, the most since 1992. The jobless rate, at 3.5 per cent, remained at lows unseen since 1997.

The preliminary wage data released today lack a large enough sample and include some biases, so the final figures may be revised upward, according to Hiroaki Muto, an economist at Sumitomo Mitsui Asset Management Co.

"Looking ahead, wages will probably rise but not accelerate," said Muto.