Bank of Japan chief Haruhiko Kuroda called on Japan Inc. to deploy its cash and invest more on facilities and workers, saying “the rule book for business will be rewritten” as the economy emerges from deflation.
“This is a great chance,” Kuroda said in a speech at the Tokyo headquarters of the Keidanren, Japan’s biggest business lobby. “Firms that are able to get ahead of a change in the environment promptly and to adapt to the economy in an expanding equilibrium will become the winners of the competition and enjoy prosperity in the new era.”
The remarks underscore Kuroda’s bid to get companies to buy into efforts by the central bank and Abe administration to shake Japan out of two decades of stagnation. While profits are soaring with a weaker yen, companies are hoarding record cash, cutting capital expenditure, and failing to boost wages quick enough to keep up with rising living costs.
“Kuroda is working very hard to convince companies to help revive the economy,” said Maiko Noguchi, an economist at Daiwa Securities Co. and a former BOJ official. “Kuroda offered an optimistic outlook on the economy – that was more like his determination to make that happen than an outlook.”
The Topix (TPX) index of shares fell for the first time in five sessions, losing 0.3 percent as the yen rose. The Japanese currency advanced 0.3 percent against the dollar to 120.15 at 3:14 p.m. The 10-year government bond yield slid to its lowest level ever, as the BOJ scoops up debt.
Prime Minister Shinzo Abe formed a new Cabinet yesterday following his election win on Dec. 14, retaining key economy-related ministers as he presses ahead with reflationary policies known as Abenomics. The victory gave him the chance to become the nation’s longest-serving premier in four decades.
Kuroda, handpicked by Abe almost two years ago to spearhead the fight against deflation, led a decision on Oct. 31 to expand already-unprecedented monetary stimulus, which gives the BOJ leeway to buy from the market every new bond issued by the finance ministry.
The yen has lost about 29 percent against the dollar since Abe took office in December 2012, helping drive up earnings of big exporters including Toyota Motor Corp. which forecasts a record profit for the year through March.
Companies’ cash and deposits climbed to a record 233 trillion yen ($1.9 trillion) at the end of September, having increased every quarter for the past six years, according to the central bank.
Wages have failed to keep up with inflation that’s been driven by the BOJ’s easing and a sales-tax increase in April. Consumer prices rose 2.9 percent in October from a year earlier, while cashearnings were up 0.2 percent.
Kuroda’s remarks today echoed a speech last month in Nagoya, where he urged business leaders to use profits more productively, saying hoarding cash will become costly as deflation ends. Companies could boost investment in facilities and jobs, taking advantage of the weaker yen, he said.
Falling consumer prices in the years of stagnation made holding cash a viable option for companies seeking safety and real returns on capital. Now, with the central bank suppressing borrowing costs, the calculus is going to change, according to Kuroda.
The BOJ’s easing has helped to drive the gap between the return on real assets and on financial assets to historical highs, according to Deutsche Securities Inc. economists led by Mikihiro Matsuoka in Tokyo.
“The incentive for companies and households to draw down financial assets and purchase real assets is rising,” the Deutsche Securities economists wrote in a Dec. 19 research note.
Yields on Japanese 10-year government bonds tumbled to a record low today, following yields on other maturities down to unprecedented levels. The finance ministry sold 2.5 trillion yen of two-year notes at average yield of -0.0030 percent at an auction today, the first time it has secured a negative rate on debt of that maturity.
Ten-year yields slid 1 1/2 basis points to 0.31 percent as of 2:40 p.m. in Tokyo, according to data from Japan Bond Trading Co., the nation’s largest inter-dealer debt broker. The previous low was 0.315 percent, set in April 2013.
Consumer prices excluding fresh food rose 2.7 percent in November from a year earlier, according to a Bloomberg News survey of economists, slowing from a 2.9 percent increase in October. Stripping out the effects of an April sales-tax increase, core inflation is forecast to be 0.7 percent, the data tomorrow are forecast to show — less than half the BOJ’s 2 percent target.
Abe last month postponed the second step of a two-stage plan to double a sales tax to 10 percent, after an increase in April hurt consumer and business spending, triggering Japan’s fourth recession since 2008. The 18-month delay fueled concern about the government’s effort to rein in the world’s heaviest debt and prompted Moody’s Investors Service to cut its credit rating on Japan.
The government will announce on Dec. 27 the details of an economic stimulus package aimed at spurring consumption and regional development, Abe said today in a speech at the Keidanren event.