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Although the economy is on a recovery track due to the normalization of economic activities, it is far from a strong recovery. To shore up consumption and lead the economy to a self-sustaining recovery, companies will need to drastically raise wages.
The preliminary quarterly estimate of real gross domestic product for October-December 2022 indicated an annualized 0.6% increase from the previous quarter, marking the first positive growth in two quarters. This is mainly due to robust consumer spending, which accounts for the majority of GDP, growing 0.5% from the previous quarter.
The removal of restrictions on social activities related to the novel coronavirus pandemic and the government’s nationwide travel discount program to boost tourism helped increase demand mainly for accommodations, railroad transportation and dining out. Automobile sales were also strong.
The relaxation of border control measures against the coronavirus in October last year also boosted consumption by foreign visitors to Japan, which is counted as exports in GDP and was a factor in pushing up exports by 1.4%.
The fact that consumption remained firm, including that of visitors to Japan, is a positive factor.
However, the annual growth rate of real GDP was lower than the around 2% forecast by private research institutes.
One reason why is that corporate capital investment fell 0.5% from the previous quarter, the first decline in three quarters. The global decline in demand for semiconductors is believed to be one of the factors behind this.
Among the key companies listed on the Tokyo Stock Exchange, a number of manufacturers have revised their earnings forecasts downward in the settlement period for the fiscal year ending March 2023, according to the government report. The slowdown in overseas economies is the main cause.
Domestically high prices have also cast a shadow over the future of the nation’s economy. In December last year, the consumer price index, excluding perishables, rose 4% from a year earlier, the highest level in 41 years.
The Cabinet Office’s Economy Watchers Survey, which indicates public sentiment on the economy, showed that the diffusion index for current economic conditions worsened for the third consecutive month in January. Many respondents were concerned that consumers will become more thrifty due to soaring prices.
To overcome the price hikes, it will be essential to realize substantial wage increases in the shunto spring labor wage negotiations that will begin in earnest soon.
Uniqlo operator Fast Retailing Co. said it will raise annual wages for its regular employees in Japan by up to about 40%. Aeon Co. plans to raise hourly wages by 7% on average for part-time employees at its supermarkets.
It is hoped that such a decision will spread to many other companies. It will be important to improve the treatment of employees, including non-regular workers, to dispel uncertainty about the future and guide the economy into a virtuous cycle.
The entire business community must do its utmost to ensure that wage increases spread even to small and midsize enterprises, through such measures as large companies that do business with small and midsize firms allowing them to pass on the increasing costs of raw materials to their sales prices.
