BOJ’s September Tankan Survey: Further Boost Momentum for Wage Increases

Editorial

14:54 JST, October 3, 2024

Despite signs of recovery in private consumption, the fact that wage increases have not kept pace with rising prices in a full-fledged manner is a serious challenge for the Japanese economy.

It is hoped that the Cabinet of Prime Minister Shigeru Ishiba will come out with policies to further boost momentum for wage increases and use them to create a virtuous economic cycle.

The Bank of Japan has released its Tankan survey for September. The diffusion index indicates corporate business confidence. The index for large manufacturing companies, a leading indicator, was 13, the same as in the previous quarter.

Looking at specific manufacturing industries, business confidence in semiconductor-related industries, where demand is expected to increase due to the spread of artificial intelligence, was favorable. The index for the electrical machinery industry rose 10 points to 11, while that for the nonferrous metals industry improved by 6 points to 12. Eight out of 16 manufacturing industries saw their indexes improve.

Although caution is needed regarding the impact of the slowdown in the Chinese economy and the tense situation in the Middle East, it can be said that the gradual recovery trend of the economy was once again confirmed.

It is also good news that the index for large nonmanufacturing companies, which mainly rely on domestic demand, also continued to be at a high level, rising 1 point to 34.

Regarding the Japanese economy, there have been concerns about weak private consumption, but the extremely hot summer has boosted sales of summer clothing, and the index for the retailing industry improved by 9 points to 28. The index for accommodations, eating and drinking services also rose due to a full-fledged recovery of visitors to Japan.

However, vigilance must be maintained for the future. Despite the fact that the Nikkei Stock Average reached an all-time high this year and the earnings of major corporations have reached record levels, the benefits have not been fully extended to households and small and midsize enterprises.

Real wages, which reflect the impact of prices, have only just begun to turn positive partly due to bonus payments, and households are still strongly budget-minded.

The Japanese economy is only halfway to overcoming deflation completely and achieving a virtuous economic cycle in which wages and investment both increase. Companies that are performing well should work harder to raise wages.

The Tankan survey also highlighted that companies in both the manufacturing and nonmanufacturing sectors continue to face severe labor shortages. It will be important to strengthen labor-saving investments as well as wage increases to ensure that the provision of products and services is not hindered.

It is also important for Ishiba to urgently present specific economic policies.

The financial markets perceive a strong sense of uncertainty over fiscal and monetary policies. When Ishiba took up the presidency of the ruling Liberal Democratic Party, stock prices temporarily fell by over 2,000 points, causing significant volatility in the financial markets.

After taking office as prime minister, Ishiba expressed his intention to continue the economic policies of the previous administration of former Prime Minister Fumio Kishida. It is hoped that Ishiba will map out tax and fiscal policies that encourage companies to invest in corporate growth and raise wages, as well as a growth strategy.

(From The Yomiuri Shimbun, Oct. 3, 2024)