Japan firms standing pat on hiring, brace for tax hit: Reuters survey

TOKYO Thu Aug 22, 2013 6:09pm EDT

A woman walks past a screen showing market indices in Tokyo August 22, 2013. REUTERS/Issei Kato

A woman walks past a screen showing market indices in Tokyo August 22, 2013.

Credit: Reuters/Issei Kato

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TOKYO (Reuters) - Most Japanese companies will not increase hiring in 2014 and more than one in six will take additional cost-cutting steps as a planned sales tax hike next year worsens economic conditions, according to a Reuters poll that underscores skepticism about Prime Minister Shinzo Abe's policies.

The results of the Reuters Corporate Survey offer a sobering mid-term report card on "Abenomics" as the focus shifts from early kudos for fiscal and monetary stimulus to worries about deregulation and efforts to tackle Japan's enormous public debt.

Abe has promised a decision on whether to move ahead with the proposed sales tax hike after a series of government hearings set to begin next week with economists and business leaders such as Toyota Motor Corp's (7203.T) President Akio Toyoda.

The success of Abe's policies will hinge on whether Japan Inc can be convinced to hire more workers, lift salaries and invest more in their operations to move the economy towards sustainable growth and the 2 percent inflation targeted by the central bank. But the Reuters survey conducted between August 2 and August 19 shows more caution than optimism among businesses.

Two-thirds of the 271 senior executives who responded to questions on the sales tax said that the planned hike to 8 percent from 5 percent next April would be negative for business.

When Japan last lifted the sales tax, to 5 percent from 3 percent in 1997, consumer spending soared in advance of the hike and then tumbled when it took effect. That was followed by a recession that pushed the economy deeper into deflation.

Just under a third said they were unsure if they could pass on the increased cost to customers. Another 28 percent said they did not expect to be able to pass on the entire additional cost of the sales tax hike.

Pain is set to felt most by the sectors that rely most heavily on domestic demand. Nearly 90 percent of retailers and all food makers responding to the poll, conducted for Reuters by Nikkei Research, said they expected to take a hit in their earnings from the sales tax hike.

"When you consider pricing policies as well as the consumer mindset, it's difficult to simply lift selling prices," said one respondent at a retailer that expects a somewhat negative impact on results from the sales tax rise.

Highlighting the added impetus for cost-cutting as the tax hike looms, companies sounded a cautious note on jobs.

They want to see Abe take the controversial step of making it easier for companies to fire workers - and hire new staff without an implicit guarantee of career-long employment. It was by a wide margin the number one choice of half the respondents among seven proposed labor market reforms.

Nearly two-thirds of companies said they planned to hire about the same number of workers in the 2014 hiring season as they did this year. Among the remaining third, those planning reductions outnumbered those planning increases.

"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 easy monetary and fiscal policies of Abenomics, Japan achieved the fastest growth among developed economies in the first half of the year and its stock market has surged over 50 percent over the past nine months.

The corporate poll was taken alongside the monthly Reuters Tankan survey, which showed on Thursday that Japanese manufacturers' optimism improved to the highest level in three years as a weak yen boosted earnings for exporters of textiles, chemicals and steel.

But the benefits have been distributed unevenly, with many exporters posting a sharp rise in profits in the latest quarter while the outlook for many firms focused on the domestic economy has been clouded by the planned tax hike.

And while gains in the stock market have spurred a surge in luxury spending, most wage earners have largely been left behind, fuelling worries about the long-term outlook for consumer demand.

The monthly Reuters Corporate Survey polls senior executives at 400 companies capitalized at more than 1 billion yen. The companies, which are split evenly between manufacturers and non-manufacturers, are not required to answer every question. The responses are provided on condition of anonymity.

(Editing by Edmund Klamann and Edwina Gibbs)

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Comments (2)
Vernierengine wrote:
To anyone with even the most cursory knowledge of Japanese economics and politics, this piece comes off as exceedingly biased and misleading.
The Reuters survey showed that most firms are very wary of a sales tax increase, which is natural…but then the reporter steps over the line by equating the sales tax increase with Abenomics, saying that the poll “underscores skepticism about Prime Minister Shinzo Abe’s policies”. But the sales tax law was passed by the Democratic Party of Japan administration under the former PM Noda. It has absolutely nothing to do with Abenomics. In fact, the law is written so that the current PM can choose whether or not to go ahead with the increase, depending on the economic situation (and there is rising expectation that changes will be made). Characterizing the recognition of negative effects from a sales tax increase as a referendum on Abenomics is either poor journalism or an outright attempt to mislead the public.
Reuters should retract this story and issue an apology. Do not do so raises serious questions about Reuter’s Japan bureau’s journalistic standard and impartiality.

Aug 22, 2013 9:06pm EDT  --  Report as abuse
It is the policy of a big majority of companies in Japan, USA, and
Europe to manufacture at the lowest possible cost in poor countries
and then to sell the manufactured goods at the highest possible prices
in rich countries. It is completely irrelevant to these companies what
politician or political party is in power in any country. The bottom
line is profit !!!

Aug 23, 2013 8:00am EDT  --  Report as abuse
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