Companies need to make aggressive investments to overcome challenges

The business environment for companies is becoming increasingly uncertain due to high raw materials prices and concerns about a slowdown in overseas economies. Also, the service industry is said to be facing a shortage of manpower.

Companies should strive to make positive investments to address the challenges they face and aim for stable growth.

The Bank of Japan has announced its Tankan quarterly economic survey for December.

The diffusion index for large manufacturing companies, a leading indicator of business sentiment, declined one point from the September survey, to stand at seven. This marks the fourth consecutive quarter of deterioration, mainly due to higher prices of raw materials.

The large nonmanufacturing industry, which is dominated by domestic demand-related companies, improved by five points to 19, just short of the 20 seen in December 2019 before the COVID-19 pandemic. The improvement is said to be attributable to progress in the normalization of economic activity and an increase in the number of foreign visitors to Japan.

Business sentiment in the manufacturing and nonmanufacturing industries showed differing trends regarding present conditions, but it is worrisome that the indexes indicating the outlook for the next three months are deteriorating on both sides of that divide.

In addition to the impact of recent U.S. interest rate hikes and economic turmoil in China due to the change in its zero-COVID policy, there are also concerns in Japan about the fresh surge of the novel coronavirus infection and high prices.

However, the economy is also at a critical point for ensuring recovery from the pandemic. A full-fledged recovery cannot be expected now if companies neglect to raise wages and invest due to concerns over uncertainty about the future.

First of all, aggressive wage increases are indispensable to enable a virtuous cycle in the economy.

Business sentiments among large manufacturers are mixed by industry sector. The indexes for the pulp and paper industry and the chemical industry, which are suffering from higher raw material prices, declined. But the indexes improved for the motor vehicle industry, in which parts shortages are being resolved. The indexes also improved for the food and beverage industry and the processed metals industry because they have been able to pass along higher costs in their sales prices.

Many large companies in the manufacturing industry play leading roles in the spring labor-management wage negotiations. Some corporate leaders in such sectors as the food manufacturing industry have already shown positive attitudes toward raising wages significantly. It is hoped that companies that are performing strongly will take the bold step of raising wages and lead their entire industries.

However, among large companies in nonmanufacturing industries, labor shortages are spreading in such sectors as the accommodation, eating and drinking services industry, in which the indexes rose sharply.

After personnel numbers were cut down due to the COVID-19 pandemic, those areas of business have not been able to bring back enough workers. Therefore, there is a fear that they may not be able to capture the increase in demand.

Companies in such areas need to focus on “investment in people” in order to secure workers through such means as improving compensation, including for nonregular employees. It is also important to make steady capital investments in labor-saving measures and digitization to overcome the labor shortage.

(From The Yomiuri Shimbun, Dec. 20, 2022)