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JPY: PM Abe plans minimum wage hike of 3% - Nomura

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 25, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Research Team at Nomura, notes that the Japanese PM Abe has planned to implement minimum wage hike of 3% in an emergency response measure which are proposed for realizing strong economy.

    Key Quotes

    “The measures, part of an effort to attain nominal GDP of ¥600trn by around 2020, fell into one of five categories, including promotion of investment and realization of productivity reforms, and stimulation of spending through an increase in wages/minimum wages.”

    “We think the proposals generally lacked detail. In the area of corporation tax reform, there is a proposal to set the stage for the tax rate to be revised below 30% as soon as possible, but no target date for attaining this is included. On wage increases, the proposal only says wage increases are hoped for in view of record-high corporate earnings.”

    Prime Minister Abe reveals policy of targeting minimum wage CAGR of 3%: According to Nikkei Quick News, Prime Minister Shinzo Abe said at the council meeting that minimum wages need to be raised at an annual rate of about 3%, and he wants the nationwide weighted average minimum hourly wage to be raised to ¥1,000. A 3% increase in the current nationwide weighted-average hourly wage of ¥798 comes to an increase of just under ¥24.”

    “Of the 56.7mn employees, 4% are affected by an increase in the minimum wage. If we assume they work an average of 7.7 hours a day and 226 days a year, the boost to total employee income comes to just under ¥100bn a year. This is less than 0.1% of annual household disposable income of more than ¥280trn and is unlikely to have much of a macroeconomic effect. If minimum wages were to continue rising 3% a year, the percentage of workers affected by the increase would grow over time, and the effect on consumer spending could become more noticeable.”

    “If the minimum wage were to be raised 3% a year, a minimum wage of ¥1,000 would be attained in 2023, over which time the government would have to exert its influence in negotiating the minimum wage. The government's stance reflects its dissatisfaction with wage increases and capex in the corporate sector despite record-high earnings. The government used its influence to negotiate an ¥18 increase in the minimum wage this year, the largest increase since 2002. Minimum wage is generally determined in negotiations between labor unions and management, and we are not sure if the government's target will be attainable, but we will be looking for upside risk to wages.”
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