The Japanese Yen got no obvious lift from weekend news that capital investment in its home country is soaring, but this is definitely a story to watch.
Nikkei reported that Japanese corporations will boost total capital expenditure by a massive 13.6% in the current fiscal year. That’ll be the first double-digit gain for four years and a huge turnaround from the 3.8% slide seen in the last fiscal year which ended in March. It’s also the sharpest increase by far since the days of the financial crisis in 2007/8.
But what corporate Japan is doing may be less important than why it is doing it. The report suggested that many companies are increasing capex primarily to cope with the company’s deepening labor shortage. It wasn’t the only reason. Some companies are modernizing equipment, some are investing more heavily in Japan rather than offshore thanks to perky local stock markets. But it was cited as the main one.
It is very hard to square this with the comparatively miserable level of Japanese cash earnings. Indeed March figures gave the Yen a little knock this month when it was revealed that they had fallen by 0.4% on the year. This doesn’t look like a market in which workers feel especially secure, never mind sought after.
Consumer prices show no obvious sign of being pushed higher by wage demands either. Admittedly April’s 0.4% gain was a rare fifth straight. But, with the effects of volatile food and energy costs stripped out, Japanese inflation was flat. Flat. This after years of stimulus aimed at raising it.
The Bank of Japan expects that Japanese labor conditions will eventually result in higher wages and, perhaps higher prices. The Nikkei report suggests that the difficulty in finding workers is acute. At some point, surely this has got to mean higher wages even if inflation expectations remain subdued.
Japanese earnings figures are going to make interesting reading for investors this year, whether they solve this mystery or deepen it.
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