November 16, 2017 / 11:06 AM / a month ago

Japan Motegi eyes higher productivity, wages to end deflation risk

TOKYO (Reuters) - Japan’s economy minister says policy needs to focus on raising productivity and wages to ensure an escape from deflation as the government prepares to announce a stimulus package next month.

The economy, in the midst of its longest unbroken run of growth in more than 15 years, is showing positive signs that it can shake off the risk of deflation due to an improving output gap, said Economy Minister Toshimitsu Motegi.

However, consumer prices have been slow to rise, and Motegi says the key is encouraging more corporate investment and more spending on training workers so they can secure higher-paying jobs.

“The situation is starting to change,” Motegi said after a meeting of the government’s top advisory panel.

“There are a lot of improvements in the economy that point toward an end to deflation. To make sure this happens, we need to focus on productivity and wages.”

Newly manufactured cars await export at port in Yokohama, Japan, November 15, 2017. REUTERS/Toru Hanai

Vanquishing deflation, or a state of falling prices that has weighed on Japan for more than 15 years, has been among the top goals of the Bank of Japan and Prime Minister Shinzo Abe since he came to power in late 2012.

Recent positive economic signs suggest Japan is breaking out the grip of deflation that has stunted growth for years, according to analysis the government submitted to the advisory panel on Thursday.

Private-sector members of the panel expressed concern that prices for services were sluggish and that improvements in productivity for some manufacturers had not lifted wages, according to a government official.

Abe has urged companies to raise salaries 3 percent next year, when companies and unions hold annual wage negotiations, but a recent Reuters poll shows that most companies will keep wage increases to between 2 and 2.5 percent.

Abe has also said he wants to offer more incentives for companies that invest in labor-saving technology and new production facilities.

Japan’s core consumer price index rose 0.7 percent in September from a year earlier for the ninth straight increase, but this was still distant from the Bank of Japan’s 2 percent inflation target.

Reporting by Stanley White

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