Finally, the Bank of Japan made a decision. At the monetary policy meeting on the 19th, it was decided to end the negative interest rate policy.
This will be the first interest rate hike in 17 years. The Bank of Japan cited the virtuous cycle between wages and prices as the reason for its decision. However, this virtuous cycle has not yet been realized, but rather has reached a stage where it can be expected to become a reality.
Will the virtuous cycle become a reality, and will we truly enter an economy where wages and prices rise? Small and medium-sized enterprises are likely to hold the key to this. (Economy Department reporter Takahiro Sato)
The decision also includes wage increase trends in the spring labor union.
In deciding whether to end the negative interest rate policy, the Bank of Japan said it would confirm that there is a virtuous cycle between wages and prices.
To that end, we focused on the trends in wage increases during the spring labor union.
The wage increase rate announced by the federation on the 15th, just before the decision meeting, was 5.28%. It was the highest level in 33 years.
Based on this result, the Bank of Japan decided to end its negative interest rate policy on the 19th. However, this rate of wage increase is centered on large companies.
Governor Ueda announced at a press conference that he had used an unprecedented method to predict trends in wage increases at small and medium-sized enterprises.
Interviews were also conducted with businesses smaller than the medium-sized and small-to-medium-sized businesses heard in the Tankan, and more than half of the businesses responded that they were planning to raise wages.
He added, ``While we recognize that many small companies have difficulty raising wages, there is also a tendency for them to decide on wages by looking at how large companies set wages. "Looking at it, I think that, although small and medium-sized enterprises may be a little weak, the situation as a whole will be to a certain extent."
Will wage increases continue?
Will the wage increase extend to small and medium-sized enterprises as expected by the Bank of Japan?
In a survey conducted by the Japan Chamber of Commerce and Industry regarding wage increases for small and medium-sized enterprises this fiscal year, of the roughly 3,000 companies that responded, more than 60% of them said they would ``increase wages,'' an increase of 3.1 points from last year.
The wage increase rate for small and medium-sized enterprises with fewer than 300 union members, announced by Rengo on the 15th, was 4.42%, which is lower than that of large enterprises, but is higher than the previous year's level.
On the other hand, there are some cautious views.
The decision to lift the negative interest rate policy was decided by a vote of 7 in favor and 2 against out of the nine policy committee members, but one of the council members who opposed it argued that it was necessary to confirm the probability that small and medium-sized enterprises' ability to raise wages would increase. .
Last year, a small and medium-sized company in Meguro, Tokyo that manufactures parts for pumps, medical equipment, and other items raised the base of 18 employees for the first time in four years, raising wages by about 4%, including regular salary increases.
The main reason for this was that they were able to explain the increase in raw material prices to their business partners and pass it on to their customers.
However, the company has not been able to pass on the rise in electricity and transportation costs to the company's prices, and has been able to overcome this by improving operational efficiency.
Masayuki Fujino, president of Fuji Seiki, said, ``I don't know if we can continue to raise wages.If we don't raise wages, we won't be able to attract people, but we can't even say to our business partners, ``I want to raise wages, so please let me raise prices,'' so I'm worried about what to do. ” he said.
Rinatsu Tanji, chief fixed income strategist at Mizuho Securities, also points out that it will not be easy for small and medium-sized enterprises to achieve the level of wage increases envisioned by the Bank of Japan.
An analysis of the Bank of Japan's Tankan and the Ministry of Health, Labor and Welfare's data on the number of new job openings shows that although small and medium-sized enterprises are feeling more understaffed than large corporations, the number of job openings is sluggish.
He says, ``Small and medium-sized enterprises may not be able to keep up with government-mandated wage increases led by politics and large corporations, and may have given up on hiring in the first place.Even the current pace of wage increases can be said to be a little excessive considering the current state of the economy.'' talk.
In the survey by the Japan Chamber of Commerce and Industry mentioned above, 60% of the companies that responded that they would ``increase wages'' said they ``plan to increase wages even though they have not seen any improvement in business performance.''
There are also signs that the company is implementing a ``defensive wage increase'' amid widespread labor shortages.
Concerns about rising lending interest rates
Small and medium-sized enterprises also expressed concerns about the rise in lending interest rates from financial institutions.
A metal processing company in Tokyo's Ota Ward, with 15 employees, invested approximately 160 million yen between last year and this year to install new equipment such as metal cutting and hole drilling machines.
Of this amount, 50 million yen was borrowed from financial institutions.
They would like to continue installing new equipment every few years, but are concerned about rising interest rates.
Ryosuke Suzuki, president of Kyokuto Seiki Seisakusho, says, ``If interest rates rise, depending on the situation, companies may hesitate to make capital investments.''
Last year, the company raised wages by about 10,000 to 30,000 yen per month depending on performance, and is considering raising wages this year, but if it is unable to invest and profitability does not increase, it will not raise wages. It is not easy.
According to a survey by Teikoku Databank, if the lending interest rate were to be raised by 1%, 7.1% of the target companies would go from a surplus to a deficit in their ordinary income (according to a survey of companies for which Teikoku Databank has financial data). Of these, 90,000 companies have interest-bearing debt and incur interest payments).
In response, Bank of Japan Governor Ueda said at a press conference that setting lending interest rates is a decision made by each financial institution, adding, ``I don't expect them to rise significantly.''
The reasons for this are that the increase in short-term interest rates due to this policy change will be limited to around 0.1%, and that if long-term interest rates rise sharply, the Bank will flexibly increase the amount of government bond purchases.
Financial institutions are also expected to carefully decide whether to raise interest rates.
Loan interest rates are determined based on market interest rates and other factors, taking into account the creditworthiness of the business partner and the status of collateral.
Several regional bank officials based in the Kanto region said, ``Even if the standard interest rate rises, we won't immediately raise interest rates. We will carefully discuss the situation while listening to the circumstances of each client,'' and ``We will raise the interest rate in a negative way.'' "They didn't lower lending rates when interest rates rose. I don't understand why they would immediately raise interest rates just because they were lifted."
From “foresight” to “realization”
Despite the lifting of the negative interest rate policy and the first interest rate hike in 17 years, the yen is trending toward a weaker yen, with the foreign exchange market temporarily dropping to the high 151 yen to the dollar.
A weaker yen leads to higher prices for energy and raw materials, which could be a factor in deteriorating business performance for small and medium-sized enterprises.
A virtuous cycle of wages and prices is finally in sight.
Will it actually become a reality?
People working at small and medium-sized enterprises account for 70% of all employees.
The real challenge now lies in whether small and medium-sized enterprises can sustain wage increases and overcome the rising interest rate phase.