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Japanese Prime Minister Kishida’s wage policy is unlikely to support the economy this year, most economists say

Japanese Prime Minister Fumio Kishida speaks during his press conference after parliament re-elected him as Prime Minister on November 10, 2021 following an election victory of his ruling Liberal Democratic Party last month in Kantei, Japan. Stanislav Kogiku / Pool via REUTERS

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TOKYO, Jan 14 (Reuters) – Japan’s policy of raising workers’ wages is unlikely to spark a positive cycle of growth and wealth distribution that will sustain the economy this year, nearly 80% of economists said in a Reuters poll.

The world’s third largest economy grew faster than previously expected in the final quarter of 2021 as consumer demand rebounded in July-September after a major blow caused by the coronavirus pandemic, the survey also showed.

Prime Minister Fumio Kishida, as part of his commitment to promoting wider distribution of wealth, has put in place wage-raising policies that he believes are key to increasing household incomes and the wider pandemic economic recovery.

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Most analysts, however, doubted the government’s policies would be successful.

Nineteen out of 34 economists surveyed said it was unlikely to work. Another eight voted “very unlikely”, in contrast to seven who thought it was likely and none who voted “very likely”.

“Even if wages go up, the Japanese would pass them on to savings while their prospects for Japan’s future are bleak,” said Hiroshi Namioka, chief strategist and fund manager at T&D Asset Management.

Since taking office in October, Kishida has urged Japanese firms, whose profits have recovered to pre-pandemic levels, to raise wages by 3% or more, and promises bold tax deductions for companies that raise wages. Continue reading

But such measures could fall on deaf ears, in part because many smaller businesses are unprofitable and already exempt from paying corporate taxes, two analysts in the survey said.


In terms of growth, Japan’s gross domestic product (GDP) is projected to have risen by an annualized 6.5% in the final quarter of 2021, up from a 6.1% increase in December, according to the median forecast of 40 economists.

However, economists have cut their GDP growth forecast for this quarter to 4.5%, after a previously estimated growth of 4.9%.

Some analysts said the recent rapid spread of Omicron’s COVID-19 variant could weigh on Japan’s recovery, although the magnitude of the impact remains unclear and depends much on how severe the government-imposed containments would be.

Core consumer price inflation, which excludes fresh food but includes energy costs, will peak at 1.1% in the next quarter and then gradually slow down, the survey found.

Annual core inflation for fiscal year 2022 is forecast at 0.9%, a little more than 0.8% in last month’s survey.

The Bank of Japan will raise its inflation forecast, which is also expected to maintain its ultra-loose monetary policy, at a two-day monetary policy meeting ending Tuesday.

No economist polled by Reuters predicted any changes in BOJ policy until at least the second half of this year.

Around 95% of respondents said the next, if any, measure by the central bank would be to end its ultra-loose monetary policy, although almost all don’t expect it to happen until 2023 or later. Continue reading

(For other stories from Reuters Global Economic Survey: Read More)

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Reporting by Kantaro Komiya and Daniel Leussink; Survey by Md Manzer Hussain and Prerana Bhat; Adaptation by Shri Navratnam

Our Standards: The Thomson Reuters Trust Principles.

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