Business Spending In Japan Remains Weak Despite Abenomics

As Japan’s cherry trees bloomed and the stock market soared, Kohetsu Watanabe flew to a blossom-viewing party in Tokyo hosted by Prime Minister Shinzo Abe to tell the premier personally how bad things really are.

When the head of machine-parts maker Daikyo Seiki Co. shook hands with Abe at the 12,000-guest event in Shinjuku Gyoen park, he says he begged the premier to help small- and medium-sized companies that make up 70 percent of Japan’s industry.

Japanese household assets were 1,547 trillion yen at the end of 2012 of which 854 trillion yen were in deposits or cash, according to a Bank of Japan report in March. Much of that money is in the hands of the nation’s growing army of retirees, whose pensions may suffer from a return to inflation. Photographer: Yuriko Nakao/Bloomberg

“Stocks and the yen may have come back, but the state of the real economy is very different,” said Watanabe, 49, who has no plans to raise wages for his 17 employees and hasn’t paid a bonus since 2008. “It’s impossible for me to be optimistic.”

His company in Akita, northern Japan, highlights the hurdle Abe faces in his quest to end 15 years of deflation and reinstate Japan as a pillar of the global economy. The first two “arrows” of so-called Abenomics, fiscal and monetary stimulus, have caused shares to rise and the yen to slump. While that helps exporters, it means more expensive imported materials and energy for Watanabe. With sales taxes set to rise in April, Abe’s third arrow — restructuring rules to help businesses — probably will take too long or be too watered down to prevent a drop in domestic demand next year.

“Japan is beginning to feel the pain of a weak yen without prospects for solid wage growth,” said Tetsufumi Yamakawa, head of Japan research at Barclays Plc. in Tokyo and a former central-bank official. “Japan can’t keep injecting fiscal and monetary stimulus. If Abe fails to boost economic growth with innovative measures, the dependence on monetary easing will end up distorting the economy.”