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EDITORIAL | Wage Increases Should Follow Rise in GDP, Stock Market Recovery

Economic revitalization won't happen without taking risks. The trend of wage increases must be extended to small- and medium-sized enterprises.

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The Nikkei stock average hits the 31,000 yen level for the first time in 33 years on the afternoon of May 22. (© Sankei by Ikue Mio)

The preliminary estimate for Japan's real gross domestic product (GDP) for the January-March 2023 period showed growth of 1.6% on an annualized basis. It is the first positive growth in three quarters.

In addition, the Nikkei Stock Average for the Tokyo stock market recovered to the ¥30,000 JPY mark ($216.54 USD) for the first time in about 30 months on March 17. Furthermore, every day the Tokyo Stock Exchange Stock Price Index, or TOPIX, is establishing new highs for the era. It is now the highest since the bursting of the bubble economy in July 1990.

Personal consumption too remains firm, despite high prices for food and other goods. Many listed companies, especially in the non-manufacturing sector, significantly improved their earnings in the fiscal year that ended March 31. These developments are probably behind the improvement in GDP and equity prices. 

Welcome Improvements

Of course, we cannot be too optimistic about the future course for the economy. There are many reasons for remaining cautious, including the economic slowdown overseas. Still, new economic vistas will never open up if we continue to be fixated on risks. 

The downgrading of the status of COVID-19 to "Category V" as a common infectious disease on May 8 is a promising sign. We should seek to ensure that the recovery trend takes root. Moreover, we must aim for a virtuous economic cycle in which wage increases, investment, and consumption are linked together. 

During the January-March period, consumer spending increased 0.6% from the previous quarter. Meanwhile, capital investment was up 0.9%. 

While these increases were admittedly small, both surpassed the prior average market forecasts. Restaurants and other businesses recovered as the COVID-19 scourge subsided and likely helped offset the adverse effects of high prices. 

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People in Tokyo are walking in front of the Marunouchi North Exit of JR Tokyo Station on their way to work on March 13. (© Sankei by Takumi Kamoshida)

Revitalizing the Economy Takes Wage Increases

There is legitimate concern that Russia's invasion of Ukraine, which partially caused the high prices, will be protracted. In order to prevent household spending from losing momentum due to successive price hikes, the trend of wage increases seen in the spring labor offensive must be extended to small- and medium-sized enterprises as well. 

Labor shortages are becoming increasingly apparent in the tourism, restaurant, and service industries. This provides an opportunity for us to further promote digitalization and other measures to increase labor productivity. It also provides an opportunity to resolve the labor shortage in a way that is compatible with higher wages. 

By strengthening these efforts, the growth potential of Japanese companies as a whole can be enhanced. If so, we might look forward to attracting domestic and foreign investment funds to Japan's stock market, and thereby revitalizing the economy.

American First Republic Bank created waves with its bankruptcy. March 10, 2023 (© Getty via Kyodo)

Global Monetary Policy Risks

In Japan, monetary policy remains highly accommodative due to the slow economic recovery. However, in the United States and Europe, interest rate hikes to deal with sharp inflation are weighing on those economies. 

Financial instability triggered by the failures of US banks is also a smoldering problem. In addition, if the issue of raising the US debt ceiling reaches an impasse and America defaults on its debts, the global economy will suffer a devastating blow. 

In order to prepare for such eventualities, Japan must regain its economic strength as soon as possible.

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(Read the editorial in Japanese.)

Author: Editorial Board, The Sankei Shimbun