"Companies aren't confident enough on the sustainability of the economic recovery. If wages don't improve much, it may pose a political risk to Abe's administration."
- Yoshimasa Maruyama, chief economist at Itochu Corp.
Amid growing debates whether the world's third largest economy is strong enough to withstand the planned sales tax hike, fresh data is raising concerns it is too early to speak about sustain economic recovery and bright prospects. Hence, the Ministry of Health, Labour and Welfare said that domestic salaries extend the longest drop since 2010 in July, as regular wages excluding bonuses and overtime, tumbled 0.4% on an annual basis, marking a 14th consecutive month of decline. However, bonus payments soared 2.1%, boosting total cash earning 0.4% higher. Contractual cash earnings plunged 0.3%, while regular pay turned lower 0.4%.
Boosting workers' incomes was one of the main pillars of Shinzo Abe's Abenomics, which is aiming at resuscitate the economy. His and Kuroda's efforts already helped weaken the Yen and start a broaden economic recovery, boosting corporate profits. With steed decline in salaries and rising consumer prices, which expanded at the fast pace since 2008 in July, a sales-tax increase should squeeze households, posing certain risks to economic recovery and Japanese government. Shinzo Abe is expected to announce his decision early next month, which under current legislation is poised to rise to 8% in April, and reach 10% in October 2015 from the current 5%.
© Dukascopy Bank SA