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"Abenomics" Being Held Back By Japanese Companies Refusing to Give Raises in Spite of Record Profits

With profits soaring, Japanese companies’ record-breaking cash pile rises ever higher. That’s bad news for the economy, which is relying on exports to sustain a modest recovery as consumers struggle with stagnant wages.

Japan’s biggest economic problem is too much income flowing to companies and their piles of unproductive cash are the main obstacle to revitalizing consumer demand, according to Diana Choyleva, chief economist at Enodo Economics. 

Few analysts expect robust pay increases when Japan’s biggest companies and unions sit down for spring wage negotiations. In fact, the Japanese Trade Union Confederation says it will ask for about a 2 percent increase in monthly base wages, the same amount it sought last year, when it received a 0.44 percent gain.

Weak wage rises and consumer spending are frustrating policy makers. Companies were expected to respond to record profits, partly the result of a weaker yen, with strong pay increases and capital investment. Yet higher pay is the missing link in the "virtuous cycle" sought by Abenomics, Prime Minister Shinzo Abe’s growth program.

And while wages stagnate, the disconnect between profits and investment has widened since the global financial crisis.

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