Japan's Employment And Wage Situation Is On Solid Ground

 |  Includes: DXJ, EWJ, EWV
by: Hale Stewart

Abenomics has been in place for about two years now. Its central goal was to get the Japanese economy out of its near two decade malaise by using three "arrows:" a stimulative monetary policy, fiscal stimulus and policy reform, with the ultimate desired end result being to get the country out of its deflationary spiral. One of the ways to increase inflationary pressure is to get the economy to beyond full employment, thereby forcing employers to raise wages in order to attract a declining number of applicants. The graphs below indicate this situation is beginning to develop in the Japanese economy

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The above two graphs are from the monthly Bank of Japan report, and they show a rather envious employment situation. The top graph shows an unemployment rate that has been steadily declining since 2009, from a bit over 5% to the current level of around 3.6%. At the same time, the number of job openings has been steadily increasing over the same period of time.

The bottom chart shows that the number of job openings (the solid black line) has been increasing while the number of applicants (the less dense line) has been decreasing.

The sum total of these graphs is that with the number of available jobs increasing and the total number of applicants decreasing, we should be getting an increase in wages.

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And these graphs show that relationship. The top chart shows the Y/Y percentage change in both hourly and monthly wages. The hourly wages (top chart, dark line) have been increasing for about a year and a quarter. The monthly wages (top chart, less dense line) have started to increase in the most recent reading. The reason for the discrepancy is most likely due to the hours worked per week being held back until recently.

The lower graph shows that monthly cash earnings (the solid black line) are in fact increasing. This increase has been in place for the last 4 quarters, meaning we can probably call this a trend now.

The sum total of this employment activity is to create demand pull inflation -- or, too many dollars chasing too few goods. And that situation appears to be happening as this chart of inflation shows:

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While the increase in wages is not the sole reason for the above increases (a declining yen is also helping to increase import prices), it is a contributor.

Japan's employment situation is enviable, especially from the US perspective. However, all the appropriate numbers are moving in the right direction: unemployment is down, the number of job applicants is decreasing while the number of openings is increasing, thereby creating upward wage pressure. Considering Abe's recent timidness regarding the outlining of specific policies, this is good news.

Hale Stewart, XE.com