Boost economic growth potential with more investment, wage hikes

The Yomiuri ShimbunBusiness sentiment among Japanese companies has slightly deteriorated, but the sentiment level itself remains high. In order to reinforce growth potential, efforts to increase capital investment and raise wages must not be slackened.

The Bank of Japan has compiled its Tankan short-term economic survey for September. The diffusion index for large manufacturers’ current business conditions stood at plus 19, down two points from the previous survey for June this year, weakening for the third straight quarter. The diffusion index for large nonmanufacturers’ current business conditions also declined by two points to plus 22.

The weakened confidence of manufacturers is considered to be primarily due to an adverse impact on exports by the protectionist policy taken by the United States and concern over the rising price of crude oil. The sentiment among nonmanufacturers was soured by a drop in the number of foreigners visiting Japan and the disruption of physical distribution chains, both amid a series of natural disasters.

The business outlook diffusion index, which forecasts business conditions three months in the future, is expected to remain on the same level for both manufacturers and nonmanufacturers.

It has become ever clearer that business conditions have been at a standstill, but there seems to be no need to become overly pessimistic. Business performance is firm on the whole, while stock prices are hovering in a high price zone that had not been seen in about 27 years.

According to the survey, the capital spending planned by large enterprises in fiscal 2018 was up 13.4 percent from a year earlier, almost unchanged from the previous survey in June. As the planned capital investment retains its high growth, it offers reassurance that companies maintain their positive stances.

Upgrading productivity key

It is perceived that both the reinforcement of productive capacity and labor-saving investment in response to labor shortages are continuing. It is important, from now on, to increase investments in such efforts as research and development and technological innovation.

For export-oriented businesses such as automakers, the weakening trend of the yen on the exchange market also serves as a positive element.

On the other hand, there is a flip side of the yen’s depreciation. It will further push up import prices of such products as crude oil, bringing about a steep rise in the costs of raw materials and transportation. These developments could strain business performance, which calls for caution.

The worsening of labor shortages is also a cause for concern. In the latest survey, the percentage of companies that say they face manpower shortages has exceeded, by a large margin, that of companies saying they have excess workforce.

According to a private credit research firm, the number of companies that went out of business because of manpower shortages reached 70 in the first half of this year (from January to June), marking a record-high pace for the half-year period.

Progress in securing sufficient manpower is not quick. It will become important to try to raise productivity so that results can be achieved with shorter working hours.

How to increase the employment of women, elderly people and foreign workers will become a challenge.

Internal reserves accumulated by companies reached a record high of ¥446 trillion at the end of fiscal 2017. On the other hand, the labor share, which indicates how much of the income and other additional values of a particular economic sector is allocated to wages and bonuses, remains at a 43-year low.

There must be more than a little room for wage hikes. It is indispensable for companies that are enjoying brisk business performance to tackle further wage hikes positively. Such endeavors will reinvigorate consumption, leading to a virtuous cycle in the economy.

(From The Yomiuri Shimbun, Oct. 4, 2018)Speech


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