During my last research trip in November, we visited mostly consumer-facing companies in Japan where we took the opportunity to pose two key questions to the management teams we met. The first was — “Are you planning to increase prices for products or services after Japan’s consumption tax hike (scheduled for April)?” And secondly: “Will you raise employee wages?”
To our surprise, many of the firms we met with said it would be difficult to increase prices for their products or services. While they seemed concerned about the rising costs of imports due to the weakening yen, they were also wary of meeting resistance from their customers, or possibly losing customers to competitors who may keep prices more stable. They also said they were quite reluctant to increase base salaries for their employees, noting that they would first need greater confidence that a more permanent, fundamental turnaround was occurring in Japan's economy.
Opinion writer and Waseda University Professor Norihiro Kato has argued that Japan’s younger generations, those who came of age after the bursting of the country’s economic bubble, have never known what a booming economy feels like. They have not experienced inflation or rising wages. “They are accustomed to being frugal,” he wrote in The New York Times. “Today’s youths, living in a society older than any in the world, are the first since the late 19th century to feel so uneasy about the future.”
I suspect a similar trait has been embedded somewhat into parts of corporate Japan, especially in consumer-facing companies. Like Japan’s younger generations, many Japanese companies also have not experienced rising prices, regular wage increases and investments rather than savings over the last two decades; some firms may have experienced only the same sense of frugality and caution as the youth in its society.
Shaking this mentality of a deflationary environment may be key to what some parts of Japan Inc. need to help boost its economy. The central bank can overcome this obstacle by sticking to its guns on its monetary policy, creating expectations of higher nominal GDP. Fortunately, since the beginning of this year some larger Japanese companies have already announced wage or price increases. Also, some recent statistics in Japan, such as an increase in the consumer price index and the availability of jobs (measured as the ratio of job offers per job seeker), may pressure companies to raise wages. We hope to see more signs that Japan appears to be finding a virtuous cycle of economic recovery and growth.You should consider the investment objectives, risks, charges and expenses of the Matthews Asia Funds carefully before making an investment decision. This and other information about the Funds is contained in the prospectus or summary prospectus which may also be obtained by calling 800.789.ASIA (2742). Please read the prospectus carefully before you invest or send money as it explains the risks associated with investing in international and emerging markets. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. In addition, single-country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific industry, sector or geographic location. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies .
The investment product mentioned above is not offered through the distributor. References to this investment product are not intended to be a solicitation or an offer to buy, sell or hold any security.
The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information.
Matthews Asia Funds are distributed in the United States by Foreside Funds Distributors LLC
Matthews Asia Funds are distributed in Latin America by HMC Partners
© 2014 Matthews International Capital Management, LLC
Matthews International Capital Management, LLC
Four Embarcadero Center, Suite 550
San Francisco, CA 94111
USA
