Japan CEOs see higher prices, wages with BOJ move ‘just a matter of time’

JAPAN’S chief executives are preparing their businesses for the first rate hike since 2007, with the central bank widely expected to end its negative interest rate policy within weeks, or even days.

“Finally, Japanese companies can increase the price of items, and that’s the first step to increase compensation and hourly wages,” Hisayuki Idekoba, chief executive officer of Recruit Holdings, told Haslinda Amin in an interview for Bloomberg TV’s Latitude, airing Mar 28. “It is just a matter of time” until the Bank of Japan (BOJ) returns to a normal situation, he said.

Inflation in the island nation appears to be holding near the BOJ’s target of 2 per cent, thanks to higher energy and raw material prices, as well as a tight labour market. As the operator of the the world’s largest job-search engine Indeed.com, with access to vast amounts of hiring data, Tokyo-based Recruit has a high degree of visibility into global employment trends.

Japan’s unions secured their biggest wage hikes in decades last week, giving the central bank more evidence that the economy is ready for the end of ultra-loose monetary policy.

“Whether it is March or April, a rate rise is the main scenario,” said Atsushi Katsuki, CEO of Asahi Group Holdings, Japan’s biggest brewer.

Although Asahi has been raising prices for beer and whisky in recent years, the environment is not strong enough for annual increases, according to Katsuki. “We can raise prices once the economy improves,” he said.

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One reason why executives are talking more openly about a BOJ move: borrowing costs are already on the rise. Some 70 per cent of Japanese businesses are already experiencing or anticipating higher rates by the middle of 2024, according to a survey of 4,377 companies by Tokyo Shoko Research. Roughly 26 per cent of 4,499 enterprises said they were told by their main bank that interest rates are on track to climb.

Other signs of normalisation have started to appear in the world’s fourth-largest economy. Some companies, unable to sustain profitability after falling behind in cost-cutting efforts, have started to cut staff. The collective bargaining group Rengo reported last week that it won an average wage increase of 5.3 per cent, the biggest jump in three decades. That easily topped the 3.8 per cent hike secured at the same juncture last year, and may be enough to nudge the BOJ to end the world’s last negative rate regime.

While Suntory Holdings CEO Takeshi Niinami is anticipating the end of negative rates, he does not expect the policy to be “unleashed” but instead be kept relatively easy.

“Consumers are not confident yet, and they are so worried about the future,” Niinami said. “We have to keep raising wages to make people feel, ‘wow, we can consume’.”

All told, a slight majority of central bank watchers predict that negative rates will end in April, and possibly as soon as this week when the BOJ policy board meets on Monday and Tuesday, according to a Bloomberg survey. Officials have been edging closer to raising interest rates and were waiting for the results of the spring wage talks in order to make a decision, sources familiar with the deliberations said last week.

The yen has been gaining against the US dollar and other currencies in anticipation of a rate hike. While that will likely reduce profits for exporters that have been able to boost their income brought home, that could also ease the burden for retailers such as Fast Retailing that procure most of their materials overseas for manufacturing operations outside Japan.

Takeshi Okazaki, chief financial officer of Fast Retailing, which operates the Uniqlo brand, said that a higher yen will reduce the frequency of foreign exchange contracts, which in turn helps to cut costs.

“The one big risk factor the Japanese economy has is the really weak Japanese yen,” Idekoba said. “Everything is becoming more expensive, but I think that is probably the first step to normalise Japanese inflation and the economy.” BLOOMBERG