Japan And Wage Increases:

 Article Source: https://mainichi.jp/english/articles/20220729/p2g/00m/0bu/014000c

Article:

TOKYO (Kyodo) -- Japan on Friday urged companies to raise wages on par with price hikes of around 2 percent, a level the central bank has set as its inflation target, so that the world's third-largest economy can complete its exit from deflation.

The government said in its Annual Report on the Japanese Economy and Public Finance that such an economy will block the country from falling into stagflation, at a time when the United States, Europe and others are suffering from price surges fanned by Russia's war against Ukraine.

It was the first such paper compiled under Prime Minister Fumio Kishida, who pledges to bring about "new capitalism," characterized by a virtuous cycle of growth and redistribution driven by investment into people.

Ideas:

Its very much needed to help the Japanese economy and consumer, but with the increase in costs affecting many companies it might not happen or not a lot of companies might not do it.

Back in December 2021 Prime Minister Kishida suggested a 3 percent increase in wage increases but its highly unlikely any companies really did that much. They might have done something much less.

But now that supply and energy costs have continue to increase is even more unlikely companies are going to do it.

The Prime Minister's ideas seem a little unclear as to how they are going to do it. Unfortunately government say something and then they either don't make it clear and or don't really know how to do it.

Article:

The document underscored "the need to shift to a new system featuring sustained and stable price increases of about 2 percent and corresponding wage growth rates."

"Given that the economy continues to be picking up and the rate of price increases is not significantly high, Japan is not in a state of so-called stagflation," which involves slow growth and high inflation mixed with high unemployment, it said.

The rate of price hikes in Japan is higher than that in the recent past, but it is attributable primarily to surging import prices driven by crude oil prices, said a government official who briefed reporters.

Ideas:

Granted Japan might not be in the same condition as Europe or the US but the Japanese economy might not be that well off too. 

It might still be in the state of "light-stagflation" or just on the edge of it, if the Japanese economy can't find ways to get past the perpetual low growth of 0 to 1 percent each year.

It migh be in the 2 percent range right now but that's because growth was very low during the pandemic period.

Yes, prices in Japan haven't increased like in the EU or the US but the 1.9 or so of price increases in Japan might still be too much for many consumers.

The weak yen doesn't help as it continues to cause increases in import prices and other prices in the Japanese economy.

Article:

Japan has yet to completely exit from long-lasting deflation, the official said.

"To get (the country) out of deflation, it is vital that nominal wages rise in line with price increases and growth in labor productivity," the paper said.

But since 1997, "The rate of increase in nominal wages has not been enough considering the rate of price increases," it said, citing businesses' cautiousness to expand operations by carrying out major investments in the midst of persistent deflation.

Ideas:

Japan is not going to completely exit from long-lasting inflation until companies are forced to increase wages.

The Bank of Japan's plan of keeping interest rates near zero and and in large banks as an incentive for large companies to use or lose their holdings in banks over the long term doesn't seem to have worked as wage increases are no where to be seen.

Labor productivity is a very different situation and it might mean Japanese companies need to join the 21st century in how they do things to improve productivity.

Japanese companies need to learn how to take calculated risks instead of always playing it safe even if the market conditions are not perfect. 

Its too easy for a Japanease company to use the "wait and see" approach, meaning waiting until the investment enviornment improves. Well the environment has been the same for 30 + years and they need to start taking some risks to grow and improve.

Article:

Companies have also regarded wages as costs, not investment in employees, resulting in insufficient distribution of profits.

Since the start of this year, the impact of the COVID-19 pandemic on the economy, such as private consumption, has diminished, while capital investment has shown signs of picking up but is still under pre-pandemic levels, according to the paper.

Following Russia's invasion of Ukraine that started in late February, the world has been hit with a storm of soaring prices that has stoked concerns about stagflation in many countries.

Ideas:

It seems Japanese companies or some or many Japanese companies now see employees like western companies do and not as important stakeholders but just costs and important parts of the company like many did decades before.

The insufficent distribution of profits will going to get bigger and bigger in Japan as Japanese companies become more like their western counterparts.

Part of the problem is now shareholders, investment companies and so on are only interested in short-term or quarterly profits and not in the long-term.

Before companies could take a long-term approach and including investing in their employess who at the time considered important stakeholders in the company.

But it seems those days may be long gone in Japan as the short-term approach and short-term profits is all that matters today.

Article:

From macroeconomic perspectives, however, inflationary pressure is weaker in Japan than in Europe and the United States, the paper said.

It also touched on bottlenecks in advancing carbon neutral efforts in Japan, while saying environment measures can contribute to economic growth, citing stricter emission regulations resulting in increased competitiveness of Japan's auto industry in the 1970s as an example.

The paper said it is necessary for Japan to consider increasing the use of nuclear power because it emits no greenhouse gases, and fossil fuel and gas prices have been surging globally in the wake of the Ukraine crisis.

Ideas:

Yes, inflationary pressue might be much weaker in Japan but for some groups its still might be too much for some groups. And as Japan has been in a quasi-deflation period for a long time even the normal consumer might seem like its too much now.

Any kind of innovation related to carbon neutral efforts in Japan will cost and will need to have some political will of the Japanese diet to advance such ideas as companies are going to resist any such moves that might cost them any more in this environment.

And yes, as energy costs continue increase Japan needs to look at going back to some kind of nuclear power. The 2011 situation is long over and hopefully the Japanese government has put into place regulatory safegaurds to make sure TEPCO and other companies are able to provide safe situations related to nuclear power.

Article:

Most nuclear power plants in Japan have stayed offline since the 2011 Fukushima nuclear disaster.

The paper called for investment in digital technology skills, saying digital transformation involving artificial intelligence and Internet of Things would contribute to solutions to social issues and the promotion of carbon neutrality.

Ideas:

These are all good ideas but they are not going to happen on their own. The Japanese government needs to provide some incentives or subsidies, if they aren't doing them yet, as a way to get companies involved in new innovative technologies to help the economy transform and grow.

It would seem by now that someone or some group has been looking at the idea or ideas of re-starting nuclear power plants for the good of the Japanese economy and Japanese society, due to the continued increase in energy prices globally.,

The 2011 situation was a once in a lifetime situation and most likely the idea a earthquake and tsunami cause problems for another power plant is very low.

But still there needs to be plans put into place by TEPCO and other companies for any and all scenarios that might happen no matter how unlikely the possibility.

Have a nice day and be safe!