Japan Times: Abenomics Drives the Destruction of the Middle Class

For one of the members of the establishment to stridently denounce of the ill effects from incumbent policies known as Abenomics, such would seem as indicative of how bad developments in Japan’s real economy have been. 

In their essay “Under ‘Abenomics,’ rich thrive but middle class on precipice”, the Japan Times holds that record stocks signifies as a key force in driving the wedge of inequality that may even lead to the destruction of the middle class.

From the Japan Times (bold mine)

What became clear was that in a society long dominated by families of moderate means — the top 1 percent of wealthy people account for a mere 10 percent of overall incomes — Japan’s middle class is now facing an existential crisis. 

According to Akio Doteuchi, a senior researcher at the NLI Research Institute, what is threatening people here is that, under the current social structure, virtually anyone in the middle class is at risk of falling into poverty.

“It’s like walking in a mine field. Many risks lie ahead of you,” Doteuchi said. “Even if you are in the middle class, if something unexpected happens, you could slip into poverty.”

Such risks could include contracting diseases such as cancer and being unable to work, the failure to land a job soon after graduation, or an ill parent who needs looking after.

The growing dependence on welfare state…

The big problem in Japan is that there are few social safety nets for such situations. In the past, workers had been shielded by the guarantee of lifetime employment at companies. When they retired, they were supported by family members, Doteuchi noted.

But now, there is an increasing number of nonregular workers, particularly younger ones, whose financial situations are unstable. More and more single-person households are vulnerable to serious health problems.

Data back this up. According to labor ministry figures announced April 1, the number of households living on welfare hit a record 1,618,817 in January. This figure has been on the rise for the last two decades.

The country’s relative poverty rate has also edged up over the last 30 years, especially with single mothers and fathers raising children, although the latest data are for 2012.

Yet record stocks fuels inequality…

On the other hand, data also show that the rich became even wealthier under Abe’s tenure.

Their numbers and the amount of their assets surged in 2013 and are still rising mostly due to sharp gains in stocks triggered by the Bank of Japan’s aggressive monetary easing, which started in April 2013, experts said.

According to the Nomura Research Institute, the number of wealthy households jumped 24.3 percent, with the amount of their total financial assets rising 28.2 percent in 2013, compared with 2011 figures. 

And as the stock market uptick continues, so too will the number of wealthy people grow.

“Since stocks account for a larger portion of their assets, both the number of wealthy people and their assets are on the rise,” said Hiroyuki Miyamoto, general manager of Nomura Institute’s financial business consulting department.

Households on average are believed to have a majority of their assets either in bank accounts or in cash. But the wealthy hold risk assets such as real estate, stocks and bonds — assets more likely to grow in value faster than mere savings accounts, Miyamoto said.

But at the same time, the wealthy in Japan are less dominant in terms of overall assets when compared with the rich in the U.S., partly because income levels of top corporate leaders are not as high as those in the U.S. and the tax system levies heavier income taxes on wealthy people than in many other countries, he said.

Experts have said the widening gap between haves and have-nots could be an economic driver when a country is rapidly growing. However, once it matures, any wide disparity can hamper economic growth, NLI’s Doteuchi said.

Well the above essentially affirms my repeated arguments here where Abenomics represents a redistribution of resources in favor of the elites and foreigners at the expense of the average individuals that leads to lower standards of living for the Japanese.

 

A reprise from my February 2015 post: (bold added)

It’s also an example of the ongoing parallel universe—surging stocks in the light of a struggling and stagnating real economy

Japan’s stock market penetration level tells us that only about 20% of Japanese households have been invested in stocks according the 2014 Fact Book by Japanese Securities Dealers Association as of 2013

As a share of financial assets, equities represented only 9.4% of the household balance sheet according to the BOJ’s fund flows based on the 3Q 2014 report.

And if one accounts for the latest activities, it appears that Japanese households have been NET SELLERS of equity securities consistently during the past 3 years (2012-14), again based on data from Japanese Security Dealers Association.

The implication is that Japanese households have hardly been beneficiaries of the latest stock market run. This reveals that based on demonstrated preference or actions by market participants, Japanese households have hardly been positive about Abenomics.

Instead because of the deliberate attempt to crash the Japanese currency, the yen, as part of the Abenomics three arrows, Japanese households have been in a capital flight as seen by the jump in the holdings of outward investments in securities and investment trusts according to the BoJ as of the 3Q.

These outflows or capital flight seem to affirm my predictions way back in 2012-13

So the biggest beneficiaries of the 15 year high Nikkei have mostly been foreigners, followed by domestic investment trusts and financial institutions. And this has been why Abenomics seems to be having a field day with international cheerleaders.

Abenomics’ attempt to push stocks to record upon record levels has only widened the disparities between financial assets and real economic performance. And such divergences has been revealed by the street survey.

Thus, whatever recovery that will be seen in the future will mostly be about statistics and hardly about progress in the real economy

Price distortions from sustained currency debasement will continue to have an adverse impact on the domestic entrepreneurs' economic calculation thereby filtering to the process of economic coordination or allocation of resources. Redistribution via inflationism won’t create economic value added but instead increases the misallocation of resources which results to the erosion of productivity and capital consumption.

By the way, today the Bank of Japan showed that foreign buying of Japan’s equities has surged to late 2014 levels when the BoJ announced QE 2.0.

Ever wonder why foreign establishment persist to lavish praises on Japan's politics?

Even from the statistical economy we see manifold signs of weakness.

Industrial developments remain sluggish. 

Latest (April 1) PMI manufacturing has been slowing while 1Q Big Industry capex has turned down. Worst, small business capex has collapsed!

From the consumer side, household spending (February) and retail sales (March) continue to reveal signs of contraction.

And the decline in consumer activities has been attributed to a slump in statistical inflation.

The Zero Hedge points at the latest substantial revisions admitted by Japan’s Labor Ministry which initially puffed up wage growth data. Yet a string of negative cash earnings growth for the past 20 months represents “the longest period in Japanese history without a single month of real wage growth!” (bold original)

The government’s price destabilization activities has not only been intensifying local residents’ exodus or capital flight out of Japan assets, now even domestic institutional investors has been shifting their portfolio exposures overseas.

From Nikkei Asia (March 26; bold mine)

Data from the Bank of Japan show pension funds, investment trusts and insurance companies bought more than 13 trillion yen ($107 billion) in foreign securities than they sold in 2014.

That represents the largest net purchase tally since 1998, the first year for which comparable data is available. Each type of investor was a net buyer by more than 4 trillion yen.

Pension funds engaged in a major shift, since in 2013 they sold nearly a net 8 trillion yen in such securities. The Government Pension Investment Fund sharply increased foreign investment in the latter half of 2014, changing tack from a previous focus on domestic bonds. Corporate pension funds followed suit.

Investment trusts had the biggest annual net purchases of foreign securities in four years, putting money in high-yield corporate bonds and real estate investment trusts. The funds had an influx of money to manage once individuals started putting savings into NISA tax-free investment accounts, introduced in 2014.

Insurance companies moved money from low-yield Japanese government bonds to European and U.S. government bonds.

Heavy buying of overseas assets is continuing this year. By March 14, net purchase of foreign securities by Japanese topped 7 trillion yen, according to data from the Finance Ministry. "Foreign investment will likely increase in fiscal 2015, too," says Yunosuke Ikeda, chief foreign exchange strategist at Nomura Securities.

For as long as the politics of inflationism persist such process will accelerate and intensify.

The accrual of negative numbers seem to converge. The Wall Street Journal estimates that statistical GDP for February has contracted anew, down by 2.1%.

All of the above demonstrates that in nearly 2 years since the grand experiment called Abenomics, the entropic process of the Japanese political economy seem as being accelerated by current policies.

The chief icon of inflationism JM Keynes presciently declared

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

The mainstream’s emerging revulsion to inequality looks like an affirmation that “this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.”

Record stocks in the face of record imbalances at the precipice.