Pay hikes crucial for Japan's economic recovery

Pay hikes crucial for Japan's economic recovery

Although preliminary data released Monday showed growth in the nation’s gross domestic product in the October-December quarter for the first time in three quarters, the key to solid economic recovery is whether wages can rise faster than prices and stimulate consumption.

In this respect, the annual shunto wage negotiations, which will enter full swing in the days ahead, should be closely watched.

Monday’s data indicate that the economy is only halfway to a full-scale recovery because of sluggish consumption, which is believed to be an after-effect of the hike in the consumption tax rate to 8 per cent in April.

During the October-December quarter, many businesses performed well, offering their employees higher year-end bonuses. Private-sector research organisations had forecast that the GDP would grow markedly in the quarter.

Price increases following the tax hike, however, hindered improvement in consumer sentiment. And although many businesses have drawn up bullish plans on their investments in plants and equipment, they appear to be cautious in implementing the plans, probably because they have yet to gain full confidence in the economic outlook.

Nevertheless, a prevailing view among market analysts is that the economy will pick up for the time being as consumers loosen their purse strings somewhat in response to drops in the prices of gasoline and heating oil.

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