Wednesday, March 26, 2014

Fire On That Mountain

The Wall Street Journal's JapanRealTime blog has published a chart of corporate Japan's Mt. Fuji of retained earnings. It shows corporate Japan, after entering a downward trend on the socking away of cash, switching post-Lehman Brothers into a "bury me under a pile of gold" mode. (Link)

The chart show companies adding to their cash Mt. Fujis in the fourth quarter of 2012 and first quarter of 2013 much as they had in the previous three years. However, the sharp drop off of cash on hand (in 10,000 yen bills, the mass would weigh around 22,200 tons) after the March end of the fiscal year seen in 2010-11 becomes weaker in 2011-12. In 2012-2013, the drop off disappears entirely, with companies having having as much cash in their accounts in September as in March.

Looking at this mountain, it would not be out of place for Abe Shinzo to stand up before a gathering of the captains of industry and commerce to say, "After all I have done for you, this is how you say, 'Thank you'?"

A corporate sector so unwilling to invest in new equipment, seriously increase employee pay or distribute earnings to the shareholders deserves Abe Shinzo's disdain. It certainly does not deserve a reduction in the corporate income tax rate, which would generate even large stashes of earnings companies do not know how to use.

Until such time as the corporations start to seriously deplete their savings accounts, it will be difficult for Abenomics to be more than a damp squib. Noises about a cut in the corporate tax cut will also be just that, noises, made in order to retain the interest of foreign investors who, coming from economic systems where there is no tolerance for companies hoarding cash or, alternatively, generating no accounting profits (71% of Japan's companies paid no income tax in 2012), would otherwise look at investing in Japan as not just depressing, but insane.

Photo image: Tanigawadake on 27 June 2007
Photo courtesy: MTC


Anonymous said...

"hart" should be "chart".

MTC said...

Anonymous -

Thanks for spotting the typo.

John Campbell said...

Are there countries that don't tolorate corporate cash hoarding? What do they do about it? My impression was that it is a problem in US, UK, Germany though not to the extent of Japan.

And if Japan invests too much already, it would seem to be better to have it go in wages, or even dividends. The real answer is an assets tax I believe.

ps Nice to have you back Michael

MTC said...

Dr. Campbell -

In Japan there are listed companies of no strategic national vaalue whose market capitalizations are less than their cash on deposit. Can you think of another major market economy where such companies would be allowed to continue to operate under their present management?