Most Japanese firms will probably not increase hiring in 2014, and more than one company out of six will feel that they have to take cost-cutting steps in anticipation of the planned sales tax increase, all adding up to a still unsure economic future for the world’s third-largest economy. Japan Prime Minister Shinzo Abe gained early praise for his aggressive fiscal stimulus to wake the economy out of the doldrums, but it will take a stronger and more astute approach to weather the worries about deregulation and Japan’s enormous public debt.
The next step in the ingenious “Abenomics” strategy was that Japan Inc. would be confident enough in the economy to invest and hire more, which would have had its own trickle-down effect. But with the sales tax increase looming, there is a general feeling of uncertainty that has all but drowned the Abe administration’s initial successes in weakening the yen. Abe is now set on hearing out industry and business leaders before making a decision on whether to move ahead with the proposed consumption tax hike. The success of Abe’s policies will hinge greatly on whether Japan’s biggest firms can be convinced to hire more workers, lift salaries and invest more in their operations to move the economy towards sustainable growth. The 2 percent inflation targeted by the central bank now seems like a pipe dream at best, but some would say that it is still attainable. Still, surveys conducted between August 2 and August 19 have shown that there is more caution than optimism among Japan’s core businesses.
Nearly two-thirds of these companies say that they plan to hire just about the same number of workers in the 2014 hiring season as they did this year, defeating the optimism that would have pushed them to hire more. “If salaries don’t rise, but prices do, there is the potential for stagflation, and that is what the questionnaire is saying to me,” said Hideki Matsumura, a senior economist at the Japan Research Institute who reviewed the survey results.
Under the fiscal policies of Abenomics, Japan readily achieved the fastest growth among developed economies in the first half of the year, with the stock market surging over 50 percent in the past nine months. But the benefits of this growth spurt have been distributed unevenly, it seems. Exporters, which make up a big part of Japanese businesses, posted good numbers in profits in the latest quarter, padded by the weakening yen. But for firms focused on the domestic economy, the tax increase brings doubt. Also, gains in the stock market have spurred a surge in luxury spending, but most wage earners have still been left behind. Japan’s consumer spending relies on the confidence of the majority of wage earners to spend more, as they make up a bigger part of the population.
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