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TOKYO—For evidence of the limitations of Japan's "Abenomics" policies, look no further than Toyota Motor Corp.
The car maker last year reported a record net profit of ¥ 2.17 trillion ($19 billion), and expects to report a
third consecutive record profit for the fiscal year ending March 31. Yet the union representing the car maker's
employees plans to ask for only a 0.8% increase in base salary this week as annual negotiations begin, a union spokesman
said. That would represent an average monthly pay increase of just ¥ 3,000 ($26).
The Japanese Trade Union Confederation has scaled back its request for increases in base pay this year, asking for "
about 2%" compared with "at least 2%" last year. A spokesman said the change reflected lower oil prices and weaker
inflation. Japan's headline inflation rate, which includes energy prices, is running at near zero.
The modest requests reflect sagging expectations in Japan at a crucial time for Prime Minister Shinzo Abe's growth
program and stimulus policies, known as Abenomics. The economy shrank again last quarter, by 1.4% on an annualized
basis, the government said Monday. It was the fourth contraction in the past seven quarters. Weak private consumption
was to blame.
In recent weeks, falling stock prices and a strengthening yen have threatened what progress has been made toward
revitalizing the economy. A weaker currency and rising stocks are seen as key to delivering higher corporate profits and
improving sentiment among businesses and consumers.
Private consumption fell a sharp 3.3% on an annualized basis last quarter as consumers remained burdened by an
increase in sales tax, to 8% from 5%, in April 2014. Since then, durable-goods consumption has fallen in six of the past
seven quarters.
There are signs that recent turmoil in financial markets is also taking a toll. Companies reported last month that
slumping stock prices were hurting sales, while household survey data indicated that the wealthiest 20% of Japanese cut
spending last year, according to government agencies.
Some business leaders have brushed off the recent market turbulence. Joji Tagawa, corporate vice president of Nissan
Motor Co., told reporters last week that despite the currency swings, the car maker was confident it could hit its full-
year profit target.
"We believe that we shouldn't be affected by each and every move of the financial markets. Our role is to support
Abenomics and the policies of the central bank," he said.
Exports unexpectedly fell during the latest quarter, by an annualized pace of 3.4%, due partly to weaker demand for
smartphones in China and equipment among US energy producers.
Japanese exporters could face headwinds from a stronger yen, which last week reached a 15-month high against the U.S.
dollar. Their earnings forecasts for the next financial year are based on an average projection of about ¥ 118 to
the dollar, according to a recent Bank of Japan survey.
The dollar could hit ¥ 100 by the end of March and ¥ 95 by the end of the year, according to Barclays. It
was trading at ¥ 113.94 Monday evening in Tokyo.
Mitsumaru Kumagai, chief economist at the Daiwa Institute of Research, said the latest results show
the "time has come for greater use of fiscal policy" to support growth world-wide, following years of extraordinary
monetary stimulus by central banks.
"Fiscal spending to support the global economy is likely to become a leading focus for the Group of Seven countries
plus China in the run-up to the May summit in Japan," he said.
Fiscal stimulus was declared one of the pillars of Abenomics. However, after a sharp rise in spending in 2013, public
demand weighed on economic growth both last year and in 2014, according to data released Monday.
To be sure, there are bright spots in Japan's economy, which is expected to grow by 1.3% in the fiscal year starting
in April, according to private economists surveyed by the Japan Center for Economic Research.
Business investment grew an annualized rate of 5.7% in the fourth quarter, a second-straight quarterly increase,
suggesting that a sales slump had been largely confined to industries directly tied to China, whose economy is
decelerating, or to the energy industry, which has been hit by a depressed oil market.
The central bank's quarterly "tankan" business survey, released in December, showed that business investment is
expected to rise by a healthy 8% in the fiscal year ending in March, compared with an increase of 5% in the previous
fiscal year. But slumping growth and market turmoil could lead many companies to change their spending plans.
Still, Japan's economy is consumer-driven, and wage growth is essential. After adjustment for inflation, Japanese
wages declined 0.9% last year, as businesses remain cautious about committing to permanent wage raises.
Yoko Kubota contributed to this article.
Write to Mitsuru Obe at mitsuru.obe@wsj.com
(END) Dow Jones Newswires
02-15-160945ET
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