Japan labour squeeze spurs investment calls

Bloomberg

Japan’s wages may still be falling by some measures, but some analysts are so convinced that the country’s labor shortages are going to impose a cost shake-out for companies and markets that they’ve started making investment recommendations.
“The labor shortage is becoming more acute,” with unemployment at just 2.8 percent, Bank of America Merrill Lynch analysts including strategist Shusuke Yamada and economist Izumi Devalier wrote in a May 19 report. “We believe the wage pressures will rise gradually and feed into broader inflation in the long term.” As a result, the bank prefers “labor-shortage beneficiaries over labor-shortage strugglers.”
Some companies are already moving to save on labor, including convenience-store chain Seven & i Holdings Co., which BOFAML rates as a “buy.” The analysts cite its deployment of integrated chips that use radio-frequency identification technology in sorting baskets to save the labor of store inspections to see how goods are moving.
Rival FamilyMart UNY Holdings Co. is among those lagging behind and set to feel greater impact
from rising labor costs, according to the team, which highlighted differences in impact of personnel costs on operating profits in the following chart:
“The immediate cost pressure (first implication) and resulting incentive for productivity enhancement (second implication) are
already impacting company fundamentals and share prices despite muted macro-level inflation,” the BOFAML analysts wrote. Morgan Stanley analysts have also done a deep dive into how rising wages will affect Japan Inc. — read here about their take.
Many economists are still skeptical about compensation levels — after all, average monthly earnings fell 0.4 percent in March from a year before. But the broadest measure of pay across the economy indicates the strongest trends since the 1990s. And anecdotes of the effects of worker shortages abound — such as delivery company Yamato Holdings Co. raising prices for the first time in more than a quarter century.
Some of the labor-shortage beneficiaries, in BOFAML’s view, include: Recruit Holdings Co., given tight job markets “should benefit the staffing business.” Price target for the stock: 6,050 yen, versus 5,640 at Monday close.
Fanuc Corp., “well positioned to benefit from the structural increase in demand for robots.” Price objective: 26,000 yen, an 18 percent jump on Monday’s close.