Japan CEOs See Higher Prices, Wages With BOJ Move ‘Just a Matter of Time’

Japan CEOs See Higher Prices, Wages With BOJ Move ‘Just a Matter of Time’

Japan’s chief executives are preparing their businesses for the first rate hike since 2007, with the central bank widely expected to end its negative interest rate policy within weeks, or even days.

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(Bloomberg) — Japan’s chief executives are preparing their businesses for the first rate hike since 2007, with the central bank widely expected to end its negative interest rate policy within weeks, or even days.

“Finally, Japanese companies can increase the price of items, and that’s the first step to increase compensation and hourly wages,” Hisayuki Idekoba, chief executive officer of Recruit Holdings Co., told Haslinda Amin in an interview for Bloomberg TV’s Latitude, airing March 28. “It’s just a matter of time” until the the Bank of Japan returns to a normal situation, he said. 

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Inflation in the island nation appears to be holding near the BOJ’s target of 2%, thanks to higher energy and raw material prices, as well as a tight labor market. As the operator of the the world’s largest job-search engine Indeed.com, with access to vast amounts of hiring data, Tokyo-based Recruit has a high degree of visibility into global employment trends. 

Japan’s unions secured their biggest wage hikes in decades last week, giving the central bank more evidence that the economy is ready for the end of ultra-loose monetary policy.

“Whether it’s March or April, a rate rise is the main scenario,” said Atsushi Katsuki, CEO of Asahi Group Holdings Ltd., Japan’s biggest brewer.

Although Asahi has been raising prices for beer and whiskey in recent years, the environment isn’t strong enough for annual increases, according to Katsuki. “We can raise prices once the economy improves,” he said.

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One reason why executives are talking more openly about a BOJ move: borrowing costs are already on the rise. Some 70% of Japanese businesses are already experiencing or anticipating higher rates by the middle of 2024, according to a survey of 4,377 companies by Tokyo Shoko Research. Roughly 26% of 4,499 enterprises said they were told by their main bank that interest rates are on track to climb.  

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Other signs of normalization have started to appear in the world’s fourth-largest economy. Some companies, unable to sustain profitability after falling behind in cost-cutting efforts, have started to cut staff. The collective bargaining group Rengo reported last week that it won an average wage increase of 5.3%, the biggest jump in three decades. That easily topped the 3.8% hike secured at the same juncture last year, and may be enough to nudge the BOJ to end the world’s last negative rate regime.

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While Suntory Holdings Ltd. CEO Takeshi Niinami is anticipating the end of negative rates, he doesn’t expect policy to be “unleashed” but instead be kept relatively easy. 

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“Consumers are not confident yet, and they are so worried about the future,” Niinami said. “We have to keep raising wages to make people feel, ‘wow, we can consume.’”

All told, a slight majority of central bank watchers predicts that negative rates will end in April, and possibly as soon as this week when the BOJ policy board meets on Monday and Tuesday, according to a Bloomberg survey. Officials have been edging closer to raising interest rates and were waiting for the results of the spring wage talks in order to make a decision, people familiar with the deliberations said last week.

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The yen has been gaining against the dollar and other currencies in anticipation of a rate hike. While that will likely reduce profits for exporters that have been able to boost their income brought home, that could also ease the burden for retailers such as Fast Retailing Co. that procure most of their materials overseas for manufacturing operations outside Japan. 

Takeshi Okazaki, chief financial officer of Fast Retailing, which operates the Uniqlo brand, said that a higher yen will reduce the frequency of foreign exchange contracts, which in turn helps to cut costs. 

“The one big risk factor the Japanese economy has is the really weak Japanese yen,” Idekoba said. “Everything is becoming more expensive, but I think that is probably the first step to normalize Japanese inflation and the economy.”

—With assistance from Mia Glass.

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