Japanese firms' cash pile hits record even as Abe aims to boost wages

Companies criticised for not deploying funds after deposits increase 5.8 per cent

PUBLISHED : Friday, 21 June, 2013, 12:00am
UPDATED : Friday, 21 June, 2013, 4:18am

Japanese companies' stockpile of cash reached a record in the first quarter as they invested abroad, underscoring Prime Minister Shinzo Abe's challenge to boost the nation's investment and wages.

Private companies' cash and deposits rose 5.8 per cent from a year before to 225 trillion yen (HK$18 trillion) - an amount bigger than Italy's economy or the liquid assets held by American firms - Bank of Japan data showed. Businesses held 55 trillion yen in direct investment abroad.

The report underscores the appetite of manufacturers to ramp up operations in faster-growing economies as they await evidence for Abe's growth agenda opening new opportunities at home. Without a revamp of corporate governance practices that forces Japan Inc to deploy its cash pile, it would be tough for Abe to transform the economy, economist Masaaki Kanno said.

"This is a very big problem in Japan's economic system," said Kanno, chief Japan economist at JP Morgan Chase in Tokyo and a former Bank of Japan official. "The problem is lack of corporate governance. The role of shareholders should be to urge managers to use cash more profitably."

Abe, 58, plans to roll out legislation to reduce corporate regulation later this year, after next month's election for the upper house of parliament. Meanwhile, he and his cabinet have set targets for increased investment at home and urged businesses to boost wages amid a bump in profits from a falling yen.

The prime minister's growth plan offers no guarantee of revitalising Japan, Moody's Investors Service said in a report yesterday. "The outline lacks steps to significantly increase corporate investment in the domestic economy," analysts David Erickson and Tom Byrne wrote. A government report on Wednesday showed Japan's exports rose more than forecast last month as a weaker yen boosted the value of overseas sales.

The Bank of Japan's release added to evidence of increased profits. "Excess net private savings to a large extent reflect the malaise that Japan has been in - of deflation and low growth," said Paul Sheard, economist at Standard & Poor's. "The corporate sector is not going to take that money and suddenly start investing, start increasing wages or hiring more workers if it doesn't see a more optimistic future."