shows that this measure has been on a steady downtrend, with the numbers particularly low for large corporates. So far, the government’s approach has relied more on carrots than sticks, with Prime Minister Abe using a combination of moral suasion and sweeteners to encourage firms to disgorge profits. The pattern has continued as we approach FY2017. For example, local media have reported that the government is considering offering corporate tax breaks to SMEs that raise wages, in light of more modest wage growth at SMEs. Discussions are also underway in the Prime Minister’s office about reforming working practices with the immediate focus on “Equal Pay for Equal work (EPEW)”—i.e. reducing the wage gap between regular and non-regular employees. But the issue is contentious from both a capital and labour perspective. And considering the time it will likely take for related legislation to pass in the Diet, we think the lack of compliance mechanisms may mean that the immediate impact of EPEW will be limited. Instead, the debate seems to have shifted towards limiting excessive and unproductive overtime work. This is low-hanging fruit that does not address the issue of Japan’s labour market rigidities, which are at the heart of the problem of suppressed wages and weak household spending power. That said, there are signs that the government’s patience is wearing thin and that the Prime Minister is increasingly leaning towards direct intervention. For example, the government has already delivered a minimum wage hike in FY2016 and plans to take the national average up to JPY1,000 by 2020 via yearly hikes of 3%. These policy changes should offer small tailwinds for the recovery in private consumption. We also think the debate over a possible retained earnings tax is unlikely to go away. We are sceptical it will be introduced in this year’s tax reforms. However, the government’s escalating war on corporates hoarding cash is likely to lead to a continued rise in dividend payouts