December 15, 2016 6:15 am JST
BOJ Watch

Worker shortage gives cause for concern -- and hope

Tight labor market may deliver inflation via wage hikes

JUN ISHIKAWA, Nikkei staff writer

The Bank of Japan will be monitoring the coming spring labor talks, hoping for wage increases.

TOKYO -- Japan's growing labor shortage has started constricting the ability of businesses to expand, but some at the Bank of Japan are quietly hoping that a tightening job market may finally make their coveted goal of 2% inflation a reality.

The central bank's latest quarterly Tankan survey numbers, released Wednesday, show that fixed investments by the nonmanufacturing sector fell short of projections despite the gradual economic recovery. As the bank dug into the data to untangle the mystery, it found that the biggest obstacle to capital spending was the crippling labor shortage.

Construction sites typify the phenomenon due to surging demand from urban redevelopment and reconstruction of areas that were ravaged by the massive earthquake and tsunami in March 2011. Now retailers looking to add locations aggressively also are stymied by their inability to attract the number of workers needed.

Both large companies and smaller enterprises are struggling to attract sufficient workers. One Tankan index compares the percentage of companies reporting a deficit in labor with those citing excess workers. That index worsened sharply for midsize and small companies from the last Tankan survey released in September.

The index for business sentiment went south for sorely understaffed sectors such as "services for individuals" and "accommodations, eating and drinking services." Smaller businesses, in particular, had a difficult time recruiting new graduates as well.

The labor shortage presents a risk to the economic recovery. But some at the central bank are quietly welcoming the employment situation, seeing it as proof that the economy is humming back to life.

Severe worker scarcity among small businesses is a classic feature of economic recoveries. If that problem persists, then those companies will be forced to raise wages. That may help lift inflation closer to the central bank's magic figure of 2%.

The BOJ's most immediate concern is the coming spring labor talks. With the consumer price index hovering in negative territory, many think corporations will not accede to large raises. But the tight supply of workers may be the impetus needed to spur wage hikes.

"It would be crazy to think that wages won't go up when the labor shortage is this severe," said a person close to the BOJ, a refrain that has been repeated for the past few years. But this time around, the global economy has bottomed out. The market rally following Donald Trump's U.S. presidential election victory has weakened the yen, breathing new life into Japan's economy. The pieces appear to be coming together for the central bank to finally prove detractors wrong.

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