Bank of Japan Tankan What do experts see?

We asked Yoko Takeda, Director of the Center for Policy and Economy at the Mitsubishi Research Institute, who is familiar with macroeconomics, about the results of this year's Tankan.

Large manufacturing companies' economic outlook deteriorated for the third straight quarter. What do you think of the results of the Tankan?

(Mr. Takeda) As the supply shortage of parts was resolved, we expected a little more improvement, but it can be said that it was worse than the previous forecast.

Rising procurement costs for raw materials and a slowdown in overseas economies appear to be behind this.

As the price of raw materials continues to soar, is the increase in costs being passed on to sales prices?

(Mr. Takeda) In the manufacturing industry, sales prices are catching up with purchase prices.

What is necessary for the recovery of the Japanese economy?

(Mr. Takeda) There are two keys.

One is wage increases.

In some places, there is a tailwind for wage increases.

The fact that the working-age population is declining and the sense of labor shortage is increasing can be seen from the indicators for employment decisions in the current Tankan.

It is expected that there will be momentum for companies to raise wages in order to secure good human resources for their survival.

The second key is investment.

We can see that companies are positive about investing in digitalization and decarbonization.

If corporate cash and deposits are used for investment and wage increases, the Japanese economy can be expected to not only recover in the short term, but also increase its growth potential through corporate innovation and increased consumption.

What is the current position of the Japanese economy?

(Mr. Takeda) Will companies and households be able to get out of the deflationary mindset as both price increases and wage increases progress?

Or, I think we are at an important crossroads as to whether business and household sentiment will shrink as overseas economies slow down and costs rise.

One of the concerns is that companies are not stepping up to raise wages as prices continue to rise.

In that case, the real income of households will fall, and consumption may be adversely affected.