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Japan: Improved Business Confidence Must Serve as Engine for Growth
Source: http://the-japan-news.com
Source Date: Tuesday, July 04, 2017
Focus: Electronic and Mobile Government, ICT for MDGs, Knowledge Management in Government, Citizen Engagement, Institution and HR Management
Country: Japan
Created: Jul 07, 2017

While feeling an upturn in the economy, they cannot have confidence in the prospects for the future. Such true feelings of business firms could be surmised from the latest data.
The diffusion index (DI) for companies’ current business conditions has improved, the Bank of Japan’s Tankan quarterly survey for June showed Monday. The diffusion index for large manufacturers’ current business conditions stood at plus 17, up five points from the previous survey for March this year. The same index for large nonmanufacturers rose three points to plus 23.
The diffusion indexes for both small and midsize manufacturers and nonmanufacturers also rose.
Backed by a recovery in overseas economies and in international market conditions, business sentiment has improved for manufacturers in such fields as iron and steel, machinery, and electrical machinery. The indexes also rose for nonmanufacturers in such business categories as retailing, services for individuals, and construction, boosted by the tailwind of a recovery in domestic demand.
The ongoing period of economic recovery, though displaying a moderate pace, has extended to be the third longest in the postwar era. In response to the favorable employment situation, consumer sentiment is also improving. The fact that the diffusion indexes in the central bank’s short-term economic survey have improved amid this environment can be considered to be a bright sign for full-fledged growth.
What is worrying is that many enterprises hold cautious views about their business outlook.
The business outlook DI, which forecasts business conditions three months in the future, fell below the indexes of current conditions, both among large and small enterprises.
Increase capital spending, wage
The domestic market is expected to shrink, due to an aging society and population decline. Overseas economies also have an armful of hot coals on such fronts as policy management by the U.S. administration under President Donald Trump and the European political scene. Their bearish sentiment may stem partly from their taking into account these risks in Japan and abroad.
A serious labor shortage at home will also be a factor hindering the growth of enterprises.
In the employment conditions DI, the percentage of enterprises that feel there is an “insufficiency” in manpower far exceeded that of companies that feel an “excess” in their workforce. The sense of a manpower shortage is on the same level as that perceived during an economic bubble.
There are many enterprises that would be driven to reduce business operations and services due to a manpower shortage, particularly in such nonmanufacturing businesses as eating and drinking services and transport. The need for labor-saving investment and the like has increased further.
It is a positive factor that the capital spending planned by large enterprises in fiscal 2017 has been revised upward to a year-on-year increase of 8.0 percent from the 0.6 percent rise logged in the previous survey.
All enterprises regaining their confidence in business conditions and taking strategic moves with aggressive investment would be a driving force for further growth. Further increase in capital investment is urged.
Investment in manpower must not be forgotten, either. To realize a virtuous cycle in which the good performance of businesses stimulates consumption, sufficient wage hikes are essential. Japanese enterprises hold internal reserves totaling a sizable ¥390 trillion. They are urged to tackle this task positively.
It is also important to improve the treatment of nonregular employees, including promoting them to regular worker status. Both the public and private sectors should cooperate to expand vocational training and the like, thus enhancing per capita productivity.
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