Can anything rescue Japan from the abyss?

“Shunto” season has failed to grip Japan.

Translating as “spring wage offensive”, Shunto marks the annual Japanese ritual of wage bargaining between business groups and labour unions.

This year’s negotiations have been preceded by months of feverish lobbying from prime minister Shinzo Abe who has urged the country’s business groups to raise wages and help smash Japan’s deflationary mindset once and for all.

Olivier Blanchard, the former chief economist at the International Monetary Fund and Adam Posen, a former Bank of England policymaker, have called for an unprecedented 10pc increase in nominal wages in 2016. In the last two years, average wages have risen by just 1pc.

“What is needed is a jump-start to a wage-price spiral of the sort feared from the 1970s”, say Posen and Blanchard, who call for a “virtuous cycle” of wage growth, inflation, and lower debt to release Japan from economic stagnancy.

‘A busted flush?’

Having decided to carry out the most radical experiment in monetary stimulus in modern history , buying up 80 trillion yen in government debt every year, there is now increasing disquiet within the ranks of the central bank.

Abenomics is now risk of becoming a “busted flush” warn Fathom, as the economy is trapped in a unique bind.

For the last two decades, Japan’s ever rising national debt has helped support growth in nominal GDP, or the total cash size of the economy.

But with the pace of economic growth falling behind rising debt, and inflationary pressures failing to materialise from either higher wages or a weaker currency,  Japan’s policy mix seems to have hit the buffers.

In their three-pronged assault on stagnation, Japan’s policymakers have only succeeded in generating “cognitive dissonance”, says Duncan Wooldridge at UBS.

Full article: Can anything rescue Japan from the abyss? (The Telegraph)


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