Insight
In this latest analysis, Shiraki delves into the intricacies of Japan’s labour market and forecasts a transformative shift in the economy:
“For the last two decades Japan's economy had been struggling with deflation and weak demand. Cost cutting by companies has hurt wages, thereby damaging the purchasing power of consumers - who constitute roughly 60% of Japanese GDP.
However, we expect this situation to change. One of the factors behind this is the coordinated action by the government, major corporates and unions to raise wages. If the so-called "virtuous cycle of wage increases and inflation" continues, Japan will end its protracted deflationary period. This virtuous cycle argument is also strengthened by Japan’s demographic crisis which impacts the shortage of labour in Japan.
At the same time corporates have been undergoing restructuring and there has been a huge focus on shareholder value. In recent years, companies have achieved record profits while keeping wages fairly flat. Bizarrely in the Japanese labour market, companies try to pay less and hire more staff - even though there is a shortage of workers.
Such a strange situation we expect not to continue. It is highly likely that the virtuous cycle of wage increases and inflation will help grow the Japanese economy, and make it behave more in line with other developed economies than it has done over the last two decades.”
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