Late last month, in what amounted to a tacit admission that nothing is working when it comes to pulling Japan out of its decades’ long stint in the deflationary doldrums, the BoJ adopted negative rates.
Haruhiko Kuroda’s move to plunge Japan into the NIRP twilight zone (where it joins Denmark, Sweden, Switzerland, and the whole of Europe) comes just as the BoJ effectively runs out of room when it comes to implementing further QE. The central bank is already monetizing the entirety of gross JGB issuance and is on pace to own nearly the entire Japanese ETF market.
In short, there’s nothing left to buy. Everything that can be monetized without completely breaking/distorting markets has been monetized and yet inflation remains stubbornly low.
So, in a last ditch effort to provide the spark Japan needs to hit the elusive 2% inflation target, Kuroda went NIRP. Subsequently, he promised to take rates even further into negative territory if necessary, a declaration which a year ago would have been good for a sharp equity and USDJPY rally but which now, much like other central banker jawboning, has a market half-life of about an hour.
Of course it’s not just the deflationary impulse that Japan is struggling to combat. There’s also a persistent lack of wage growth. “Wages need to rise at a 3 percent annual pace to achieve stable 2 percent inflation,” Bloomberg reminds us.
In short, Japan is nowhere near 3% when it comes to rising worker pay. In fact, data out on Monday shows that wage growth for 2015 was just 0.1%, down from an already abysmal 0.4% in 2014.
In other words: wages have flatlined.
For December, real wages fell 0.1% Y/Y. That's the second straight month of decline. "Total wages in Japan haven’t risen more than 1 percent in any year since 1997 and they fell for the past four years once inflation is accounted for," Bloomberg adds, in an extremely amusing indictment of the country's complete failure to put the "lost decade" behind it.
Here's the complete breakdown from Goldman:
Preliminary data show winter special wages down 0.4% yoy: Nominal cash wages in December came in at +0.1% yoy, a slight increase from 0.0% in November. Basic wages continued the uptrend, coming in at +0.7% yoy (November: +0.3%), but overtime wages slowed to +0.8% (+1.2%). Special wages, which include winter bonuses and can account for around 50% of nominal cash wages, were down in December, coming in at -0.4% (preliminary data basis).
Over 2015, nominal cash wages rose 0.1% yoy, a slowdown from growth of 0.4% in 2014. Basic wages improved a sharp 0.3% (2014: -0.4%), but special wages were down 0.8%, and overtime wages also slowed.
Real wages negative for second straight month: December real wages fell 0.1% yoy, for the second straight month of decline, reflecting the small increase in total nominal cash wages of only 0.1%, and a rise of 0.2% yoy in the CPI excluding imputed rent (which is used in the calculation of real wages) in December. While basic wages remain on a growth path, albeit modestly, wage conditions in general, including bonuses and overtime wages, have deteriorated.
Obviously, none of that bodes particularly well for the Japanese consumer. Domestic consumption is expected to have shrunk in Q4, marking the second quarter of contraction for the year.
"The pace of wage gains has been very slow when you think about how much labor shortage there is," Hisashi Yamada, chief economist at the Japan Research Institute in Tokyo lamented on Monday.
Perhaps Japan's beleaguered workerkers should take a page out of Abenomics architect Akira Amari's book and just resort to taking bribes when they need a few extrra yen.
Unfortunately for Japan, Kuroda has very nearly reached the Keynesian endgame. That is, the BoJ's counter-cyclical capacity is exhausted. Expanding QE any further risks seriously impairing liquidity and market function and taking rates further into negative territory risks more cancelled JGB auctions which in turn inhibit QE. There's simply nothing else the central bank can do.
With Abenomics having thus failed miserably, we'll sit back and wait for the day when Abe and Kuroda finally take a long bow and fall (figuratively speaking we hope) on their swords.