Japanese firms boosted their cash stockpile to a record in the first quarter, underlining challenges Prime Minister Shinzo Abe faces a year and a half into his drive to reflate the economy.
Nonfinancial companies’ holdings of cash and deposits rose 4.1 percent to 232 trillion yen ($2.3 trillion) at the end of March, while they increased borrowing from private banks at the slowest pace since the final quarter of 2012, a Bank of Japan report showed Wednesday. Households kept more than half of their assets in cash and deposits.
Japan’s Prime Minister Shinzo Abe. ( Bloomberg)
Firms’ reluctance to plow cash into projects at home increases the urgency for Abe to deliver on promises to boost the growth potential of Japan’s economy with his “third arrow” of Abenomics. With domestic prospects limited, direct investment overseas jumped 21 percent from a year earlier ― a 10th straight quarter of double-digit gains.
“Companies and households are still not convinced about Abenomics,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo. “Abe has to show he can boost the economy by implementing, not just compiling, the growth strategy, and the BOJ may have to do more to boost the economy and sentiment.”
Japan’s benchmark Nikkei 225 Stock Average has fallen 6.2 percent this year, the worst performer among major global stock markets tracked by Bloomberg News, reflecting dimming expectations for Abenomics. The index rose 1.1 percent at 9:39 a.m. in Tokyo after the Federal Reserve said U.S. growth is recovering and interest rates will remain low for some time.
The tendency to stick to cash suggests BOJ Gov. Haruhiko Kuroda’s efforts to stoke risk-taking has yet to gain much traction in an economy that he’s trying to steer out of 15 years of deflation. Kuroda has said encouraging companies and households to make investments is a key transmission channel for the central bank’s unprecedented easing to achieve a goal of stable 2 percent inflation.
Abe plans to cut the corporate tax rate in stages from the fiscal year starting April, lowering it below 30 percent in a few years, as he seeks to boost Japan’s competitiveness and attract foreign investment.
The task for the prime minister is to overcome opposition from vested interests as he tries to unshackle businesses in the medical and agricultural sectors. He also needs to find revenue to fund the lower corporate levy, or risk worsening the world’s heaviest debt burden.
Demographics present one of the stiffest headwinds to efforts to stoke a sustained recovery: Japan’s aging and shrinking society means overseas markets offer better prospects for Japanese companies seeking growth.
The flow of direct investment abroad by Japanese companies was 1.25 trillion yen in the first quarter, raising the balance to a record 66 trillion yen, according to the BOJ. (Bloomberg)