Japanese companies' cash holdings rose to a record last quarter,highlighting Prime Minister Shinzo Abe's struggle to spur theinvestment and wage increases needed to end a 15-year deflationarymalaise.

Corporate holdings of cash and deposits rose to 224 trillion yen($2.15 trillion), up 5.9 percent from a year earlier, according toa Bank of Japan report released yesterday.

The yen's 17 percent slide against the dollar this year hasboosted exporters' profits, contributing to a cash pile similar insize to Russia's gross domestic product. As Abe campaigns toreflate the world's third-biggest economy, he's relying on companyspending to drive a longer-term recovery once the jolt from fiscaland monetary stimulus wears off.

“Companies still have a deflationary mind-set,” said ShinichiroKobayashi, a senior economist at Mitsubishi UFJ Research andConsulting Co. “It will take a while for them to start to increaseinvestment and wages.'”

The Bank of Japan's latest Tankan survey showed large companieslowering their projections for investment this fiscal year, whichends in March. Regular wages excluding overtime and bonuses fell0.7 percent in October from a year earlier, a 17th straight monthlydecline.

The yen was trading at 104.32 per dollar at 10:40 a.m. in Tokyo.Earlier the yen touched its weakest level since October 2008, afterthe Federal Reserve announced it will dial back its monthly bondbuying. The Topix index fell 0.3 percent at 10:34 a.m. in Tokyo,breaking a three-day climb, as the BOJ was about to wrap up atwo-day policy-board meeting. The central bank is forecast to leaveits record easing unchanged, according to a survey of economists byBloomberg news.

In an interview this month, Abe urged companies to increaseswages faster than the cost of living to break the legacy ofdeflation.

“What we want is for wages to rise more than prices,” Abe saidin an interview in the prime minister's official residence inTokyo. “We want to enter a virtuous cycle as quickly as possible,”where economic growth propels corporate profits, employers raisecompensation and workers spend more, he said.

No Evidence

The prime minister has called four meetings since September withunion and business leaders to persuade them to build a consensus onthe need for higher wages. The next one is today, with thoseattending to include Hiromasa Yonekura, head of the Keidanrenbusiness lobby and chairman of Sumitomo Chemical Co., according tothe cabinet office.

The central bank's efforts to drive 2 percent inflation areadding urgency to the task as consumer prices start to pick up. Inaddition, Abe needs to navigate the economy through a sales-taxincrease in April that will damp consumption and is forecast totrigger a one-quarter contraction.

Large companies plan to boost spending by 4.6 percent in theyear ending March, compared with a 5.1 percent projection threemonths earlier, the BOJ's quarterly Tankan survey showed thisweek.

“We still don't find any evidence that corporates are reallystarting to get confident about the sustainability of the recoveryand actually ramping up domestic investment,” Izumi Devalier, aJapan economist at HSBC Holdings Plc in Hong Kong, said this week.“And that remains a worry in an environment where consumption isgoing to weaken next year.”

Besides highlighting the amount of cash held by Japanese firms,the BOJ report also showed them ramping up overseas investment atthe fastest pace in 15 years to a record 63 trillion yen. Sixtypercent of Japanese companies with operations in Asia plan toexpand business there in the next one or two years—up 2 percentagepoints from last year, according to a Japan External TradeOrganization survey released Dec. 12.

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