TOKYO (Reuters) - Japan Inc has become increasingly pessimistic about the country’s ability to beat deflation, with the vast majority of firms now expecting no escape for the foreseeable future, a Reuters poll showed.
Most Japanese companies also said they did not think Prime Minister Shinzo Abe’s latest growth strategy that centers on lifting the mininum wage and investment in technology would help bring significant improvement to a faltering economy.
Abe swept into office three years ago with bold plans to end decades of deflation and bring about sustainable growth. But while unprecedented monetary policy in tandem with fiscal stimulus met with some initial success, any gains in ridding the country of a deflationary mindset look like they could be slipping away.
The Reuters Corporate Survey, conducted May 9-23, found 70 percent of companies see no decisive escape from deflation for the foreseeable future, up from 48 percent in January when the same question was asked.
“Demand is not on an upward trend, and household spending is not rising because base pay is not rising,” wrote a manager at a chemicals company.
“It has become difficult for companies to lift prices.”
Japan has only managed very mild inflation since Abe took office and the pace of price gains has been slowing since 2014. Core consumer prices in March fell 0.3 percent from a year earlier, the fastest decline in three years due to lower oil prices.
The survey also found that 79 percent of companies were worried that consumer prices could return to deflation either this year or next.
In addition to wage concerns, firms also cited Japan’s shrinking population and plans for a sales tax hike next year as factors likely to undermine consumer spending.
The survey, conducted monthly for Reuters by Nikkei Research, polled 510 big and medium-sized firms with managers responding on condition of anonymity. Around 240 answered questions on deflation.
“Annual wage negotiations were disappointing and gains in the yen have soured the corporate mood,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities who reviewed the results of the survey.
“Oil prices have been rising recently, so deflation expectations could recede once this starts to push up consumer prices, but the economy remains stuck in a soft patch.”
Seeking to jump-start an economy that narrowly escaped a recession in the last quarter, the government has said this year’s growth strategy will raise the minimum wage, improve pay for day care workers and encourage investment in cutting edge technology like artificial intelligence.
But 66 percent of respondents said they thought it would be difficult to expect an improvement in the economy on the back of the plans which are set to finalised soon.
In written comments, corporate managers criticized the policies as too piecemeal to have much of an impact on a shrinking labor force and weak consumer sentiment. They also said they were concerned about a stronger yen pushing up import prices and the fallout if the national sales tax hike went ahead as planned.
An increase in the tax to 10 percent from 8 percent, already delayed once, is scheduled for next April, but speculation is rife that Abe will postpone it again given the fragile state of the economy and as the last increase in 2014 caused a recession.
The survey also showed about two-thirds of respondents would be happy if the dollar stabilized around 110 yen.
This month the dollar slumped to an 18-month low of 106.14 yen, causing concern as a strong yen reduces earnings repatriated from overseas. The dollar has since regained some of that ground to trade at around 110 yen.
Reporting by Stanley White; Additional reporting by Tetsushi Kajimoto and Izumi Nakagawa; Editing by Edwina Gibbs
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